Investing in Sector ETFs

With market gains being driven by sector rotation and cyclical names, now’s the perfect time to begin exploring sector ETFs.


tiles showing sector etfs

Investors looking for more than just broad exposure to U.S. equities through traditional mutual funds and ETFs frequently target funds that invest in specific types of investments or sectors. This can take the form of value funds, growth funds or sector ETFs that invest in sectors like metals and materials, energy, technology, finance or healthcare.

Each month, Wall Street’s Best ETFs dedicates a portion of the advisory to updating investors on the performance and expectations of these sector ETFs through the Sector Round-Up.

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The following excerpt from Wall Street’s Best ETFs is taken from the April edition and features that discussion of sector ETFs. This excerpt has been lightly edited to reflect current performance of the funds that were first shared with subscribers last month.

Sector ETFs Featured in April’s Wall Street’s Best ETFs

The energy sector continues powering higher, with the Energy Select Sector SPDR ETF (XLE) boasting a year-to-date total return of over 33%. The energy sector was slammed in 2020, making this turnaround even more impressive.

A few trends are contributing to strength in energy sector ETFs. Analysts expect increased travel this summer, as compared to a year ago. Gasoline prices are already on the rise, and that’s expected to continue. Also, as businesses ramp up after lockdowns, their energy needs are increasing.

The Financial Select Sector SPDR ETF (XLF) is also in the money (and just off all-time highs), with a year-to-date return of over 24%. The ETF traded off its March highs, pulling back more than 5% in tandem with a mild broad market retreat, before breaking through resistance in late April and subsequently finding support at the same levels.

Watch for signs of a further pullback, if institutional investors believe it’s time to take some profits after a run-up that began in April 2020.

Probably the most closely watched sector, and the one that drove the lion’s share of 2020’s gains, is technology. The Technology Select Sector SPDR ETF (XLK) is up 6% year-to-date. As many of the largest stocks in the S&P 500 hail from this sector, you’ll see situations where weakness in tech can put a dent in the overall market.

Although broad market trends remain bullish, the increase in choppy trading means that individual stocks and sector ETFs can quickly fall out of favor as investors pivot from the technology stocks that drove the pandemic recovery rally and into sectors poised to benefit from national and (eventually) international reopening.

Longer-term buy-and-hold investors will continue to enjoy modest portfolio gains due to the aforementioned bull market, but investors looking to outperform may want to consider targeting short- and intermediate-term trends in those individual stocks and sector ETFs.

As readers of Wall Street’s Best advisories already know, each edition can help you learn more about investing in stocks and ETFs and technical and fundamental analysis. Wall Street’s Best subscribers are also provided with a model portfolio designed to take advantage of the current market conditions and expertise of the analysts.

To learn more about Wall Street’s Best ETFs and take control of your own investment decisions click here.

 

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ETFs are different from mutual funds. Discover the differences and learn how you can include ETFs in your portfolio for big profits and dividends, with minimal risk—revealed in this FREE report, 5 Tips for Finding the Best ETFs for Beating the Dow Jones Index.

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