Sector ETF Investing: A Long-Term Perspective

Health care’s perch near the top does not come as a surprise. Dating back to 1989, the sector is the best of the 10 GICS sectors in the S&P 500 with an annualized total return of 11.51%, according to S&P Capital IQ data. Interestingly, health care barely nudges past energy for top honors among S&P 500 sectors since 1989. Interesting because XLV is inching closer to swiping the third spot from the Energy Select Sector SPDR (NYSEArca: XLE) among the largest sector ETFs. [Bronze Medal Race for Sector ETF Surpremacy]

As the chart below indicates, dividends have been a larger driver of the energy sector’s total returns than payouts have been with health care. Telecom and utilities are the sectors that benefit most from inclusion of dividends. Excluding dividends, technology is the best S&P 500 sector dating back to 1989, health care falls to second followed by discretionary, staples and energy.

Long-Term S&P 500 Sector Returns

Chart Courtesy: S&P Capital IQ. Click to enlarge.