By a wide margin, the Financial Select Sector SPDR (NYSEArca: XLF) is the largest sector exchange traded fund. With $15.3 billion in assets under management, XLF is nearly 20% larger than the Technology Select Sector SPDR (NYSEArca: XLK).
And XLK is far larger by assets than the third-largest sector fund, but is in the bronze medal race for sector ETF heft that things start to get interesting. [XLF Races for Third Place for ETF Inflows]
That is where the Energy Select Sector SPDR (NYSEArca: XLE) and the Health Care Select Sector SPDR (NYSEArca: XLV) are tussling. XLE has nearly $8.4 billion in assets while XLV has $7.9 billion. XLV, which allocates a combined 28% of its weight to Dow components Johnson & Johnson (NYSE: JNJ), Pfizer and Merck (NYSE: MRK) is making progress in the race for third against XLE. [Slide Show: Major Sector ETFs]
While both ETFs have seen positive inflow this year, XLV has raked in almost $478 million compared to $416.7 million for XLE. What is interesting is that it has taken so long for XLV to be in position to take the third spot from XLE. Over the past five years, XLE is up an impressive 72.7%, but XLV has doubled.
Over the past year and two years, XLV has maintained impressive margins of out-performance over its energy rival, though to be fair, direct comparisons of energy and health care ETFs are not exactly apples-to-apples.
XLE is even more top-heavy than XLV with Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) combine for about 29% of the ETF’s weight.
As for the factors that could see this race grow even tighter, some integrated oil stocks have been disappointments this year relative to independent exploration and production firms. Increased pressure on refining margins could weigh on the bottom lines of the integrateds, in turn pressuring XLE.
On the other hand, XLV could be derailed in its quest for title of third-largest sector ETF if investors begin believing health care is a richly valued sector on par with staples and utilities. [Playing Defense Isn’t Cheap]
As it is, XLV’s P/E ratio of nearly 17 is higher than the almost 15 sported by XLE.
Interesting tidbit: Over the past 14 years, there is only one month of the year, January, in which XLV ranks as the best or second-best of the nine SPDRs, but it ranks as the worst SPDR in two months. XLE ranks as the best or second-best SPDR in three months, but it is not found among the two worst SPDRs in any of the 12 months, according to CXO Advisory.
Health Care Select Sector SPDR
