The recent plunge in oil prices and subsequent underperformance of the energy sector has been dragging on the S&P 500 Index. This last quarter’s revenue growth was -3.4%. If you excluded the energy sector, the revenue growth increased to 1.5%. What If You Could Buy The S&P 500 Without Energy Stocks?
Enter the new ProShares Ex-Sector ETFs, a group of exchange traded funds that promise to leave behind sectors you don’t like. The new ways to track the S&P 500 provides investors with greater control over how they invest, allowing people to leave behind sectors that they don’t want.
For example, the S&P 500 Ex-Energy ETF (NYSEArca: SPXE) will try to reflect the performance of the S&P 500 Ex-Energy Index, which provides exposure to S&P 500 companies with the exception of those included in the Energy Sector, according to an updated prospectus filing. The S&P 500 Energy Sector Index is the worst performing segment of the S&P 500 so far this year, plunging 21.2% year-to-date. In contrast, the S&P 500 Index is only down 4.9% this year.
“For the third quarter, the Energy sector is expected to be the largest contributor to the projected year-over-year declines in both earnings and revenues, as the price of crude oil is well below year-ago levels,” according to a recent FactSet research note.
FactSet calculates that the estimated earnings growth rate for the S&P 500 ex-Energy is 3.0%. Meanwhile, for Q3 2015, the research provider expects an earnings decline of 4.4% for the broader market.
“Institutions have been following this strategy for a long time,” Michael Sapir, Co-Founder and CEO of ProShares, told ETF Trends. “Invest and leave behind a segment they don’t want. This is a case of taking an institutional strategy and bringing it to advisors and investors.”
The new ETF will allow investors to cut out less favorable areas of the market.
“Up until this point, many have decided to overweight certain sectors by buying a specific sector fund,” Sapir said. “Today, there are many that are looking to cut out undesirable sectors.”
Moreover, Sapir argues that an ex-sector S&P 500 ETF may also help augment a portfolio or at least balance out a portfolio that has been overweight a sector.
“Some professionals have exposure in their own company stock and may look to balance their portfolios by owning the sp without overweighting that sector,” Sapir said. “Rather than having to structure a strategy with many ETFs, you have a one ticker (ETF) solution without having to worry about ongoing rebalancing.”
The S&P 500 Ex-Financial ETF (NYSEArca: SPXN), S&P 500 Ex-Health Care ETF (NYSEArca: SPXV) and S&P 500 Ex-Technology ETF (NYSEArca: SPXT) also began trading Thursday, September 24. The ex-sector S&P 500 ETFs will have a 0.27% expense ratio.
ProShares is currently testing the waters with these four ex-sector S&P 500 ETFs and could roll out with more options if the strategy proves popular.
As the fund names imply, the new ex-sector S&P 500 ETFs will track S&P 500 companies except those mentioned sectors.
SPXN will follow the S&P 500 Ex-Financials Index, which includes S&P 500 companies with the exception of companies included in the Financial Sector.
SPXV will mirror the S&P 500 Ex-Health Care Index, which includes S&P 500 companies with the exception of those included in the Health Care Index.
Lastly, SPXT will reflect the performance of the S&P 500 Ex-Information Technology & Telecommunications Services Index, which holds S&P 500 companies with the exception of those included in the Information Technology and the Telecommunication Services Sectors, or collectively the Technology Sector.
For more information on new fund products, visit our new ETFs category.
Max Chen contributed to this article.