It has been suggested that sector-based exchange traded funds (ETFs) are losing popularity among investors as a result of the uncertain market. However, data shows that the flows into sector ETFs totaled $11 billion for the first nine months of the year. Rebecca Knight for the Financial Times reports that the overall trend is that more money is going to come out of mutual funds and go into ETFs for the coming years. Certain sector specialties did take a dive this summer during the market turmoil. During August, three sectors experienced outflows; communications lost $34 million, health shed $145 million and utilities dropped $987 million.
Over the past six years, the compound annual growth rate for sector ETFs is at 63%. The annual growth rate for ETFs has been 36% over the same period. Advantages of sector ETFs include low expenses and tax advantages. On the flip side, sector ETFs can be risky if your portfolio is heavily invested in one sector. Remember diversification is important.
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.