How the Pros use Global Sector ETFs

Sector and industry exchange traded funds are hot. That much is highlighted by the $37.7 billion investors poured into such ETFs in the first half of 2014, nearly triple the $13.6 billion allocated to broad market equity funds.

When it comes to sector funds, U.S. focused offerings, such as the Health Care Select Sector SPDR (NYSEArca: XLV) and the Technology Select Sector SPDR (NYSEArca: XLK), have a tendency to overshadow their global and international counterparts.

However, some ETF strategists and asset managers regularly allocate client capital to global sector ETFs. Beaumont Capital Management is one example.

The firm’sBCM Global Sector Rotation largely quantitative strategy “focuses on the 10 sectors of the S&P Global 1200 Index using ETFs. In the base case, all sector ETFs would be equally weighted, but on a weekly basis, the model reviews the price momentum, volume of trading, volatility of each market sector and the rate of change in each sectors’ volatility. Each sector is only measured against itself and cash, so when the model signals that a particular sector’s risk-adjusted returns are more attractive to the money market, the sector will be owned and when that is not the case, the sector will be sold,” said S&P Capital IQ in a new research note.

BCM Global Sector Rotation held seven iShares global sector ETFs as early September, including the $1 billion iShares Global Energy ETF (NYSEArca: IXC), which is one of the more visible global sector ETFs.

While 55.5% of IXC’s weight goes to U.S. companies, the ETF features robust exposure to Royal Dutch Shell (NYSE: RDS-A), BP (NYSE: BP) and Total (NYSE: TOT), Europe’s three largest integrated oil companies. Those firms are currently attractively valued relative to U.S. rivals and Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). [Bargains With Global Energy ETFs]

“In general, S&P Capital IQ views the stocks inside to be incurring modest risk when assessed using S&P Capital IQ Quality Rankings and S&P Capital IQ Qualitative Risk Assessments. However, we have a negative view on its technical trends,” said the research firm.

S&P Capital is more bullish on the $755.8 million iShares Global Tech ETF (NYSEArca: IXN), which the research firm rates overweight.