ETF Trends
ETF Trends

Advisors and investors have an expanding array of sector exchange traded funds to use to express tactical views.

As advisors look ahead, they may consider using sectors in a diversified portfolio as they offer the right balance of capitalizing on potential opportunities and avoiding potential pitfalls. Sectors may also offer advisors a greater ability to navigate turbulent markets than style investing.

Scheduled for Thursday May 14 at 2PM Eastern time, the upcoming webcast Strategizing With Sectors will explore how advisors can maximize the benefits of sector ETFs in a rapidly changing market environment.

State Street Global Advisors (SSgA) Head of Research David Mazza, SSgA Research Strategist Jared Rowley and Swan Global Investments Randy Swan will join ETF Trends publisher Tom Lydon to explore tactical application of sector ETFs from SSgA’s well-known sector SPDR lineup, the largest and most heavily traded group of sector ETFs. [ETFs for Cyclical Trends]

At the end of last year, sector ETFs had nearly $200 billion in combined assets under management. Although advisors and investors have generally favored international ETFs in 2015, nearly $5 billion of new assets has flowed into sector funds year-to-date, according to State Street data.

“For instance, even with nearly a 60% forecasted decline in year-over-year earnings growth, the energy sector attracted the most flows. Perhaps the 19% pop in the spot price of oil for the month was the catalyst that pushed energy past health care, a market darling, for the top spot in year-to-date sector flows,” according to State Street. [April ETF Inflows]

Investors have allocated over $2.2 billion to the Energy Select Sector SPDR (NYSEArca: XLE) this year while the Health Care Select Sector SPDR (NYSEArca: XLV) has seen inflows of nearly $828 million.

With Treasury yields rising and speculation still intense that the Federal Reserve will raise interest rates later this year, advisors should take this opportunity to explore which sectors are vulnerable to rising rates and which groups thrive as borrowing costs climb.

For example, investors have not been fond of “bond proxy” ETFs, such as the Utilities Select Sector SPDR (NYSEArca: XLU) and the Consumer Staples Select Sector SPDR (NYSEArca: XLP), this year given those sectors’ reputations for rate sensitivity. [Investors Flee Bond Proxy ETFs]

However, cyclical sector ETFs, including the Technology Select Sector SPDR (NYSEArca: XLK), can prove durable as rates rise. Apple (NasdaqGM: AAPL), Microsoft (NasdaqGM: MSFT), Google (NasdaqGM: GOOGL) and Cisco (NasdaqGM: CSCO), four of XLK’s top 10 holdings, have four of the five largest cash hoards in Corporate America. At the end of last year, Apple had $178 billion in cash and marketable securities, but that number has since grown to $194 billion. [ETFs for Cash Rich Companies]

Advisors interested in attending the Thursday May 14 webcast at 2PM Eastern can register here.