Sector-focused exchange traded funds (ETFs) are getting put through the slicer. Some of the relatively new sector ETFs focus on extra-slim segments such as medical device manufacturers or regional U.S. banks. "Short" sector ETFs are the latest addition, going up when the stocks in their basket go down. John Prestbo for MarketWatch.com says choosing between them doesn’t seem so difficult at first glance, given the clues in their names. A "financials" ETF from iShares or Sector SPDRs contains the same mix of brokers, banks, insurers, and asset managers but there are differences among the choices and the breakdowns.
Looking at the make up of some of the ETFs, one can see the differences. For example, Sector SPDRs are made up of stocks from the S&P 500, shile iShares and ProShares sector ETFs are based on secots of the Dow Jones indexes. Because of this difference, Sector SPDRs tend to have fewer stocks than their counterparts. They may all have the same large stocks, but with different weighting. The Dow indexes also tend to offere exposure to the mid- and small-cap companies, since they hold more stocks. Another difference is how the companies are lumped together. Sector SPDRs includes telecommunications with technology, so this ETF is going to perform differently than a pure telecommunication or pure technology ETF.
In this case, the more choices, the better. It has never been easier to use an investment strategy revolving around U.S. industries and sectors. I was on a panel with John at a recent ETF conference and find him to be very seasoned and knowledgeable concerning the industry.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.