It is not just enough to be invested in the markets to grow an investor’s portfolio. It is also important to reduce exposure to certain areas in a changing market environment.
Investors may consider an ex-sector stock exchange traded fund strategy in the current environment to exclude exposure to underperforming areas and participate in broad market growth.
Most investors turn to beta index-based ETFs, like the SPDR S&P 500 ETF (NYSEArca: SPY), to fill out their core stock portfolio position. However, the broad approach may expose investors to underperforming segments of the market. For instance, among its top sector allocations, the S&P 500 Index includes a hefty 20.4% position in information technology and 13.7% in health care, two segments that have been relatively flat over the past month as other sectors rallied on the Donald Trump victory.
Alternatively, investors can remove these weak areas and still participate in the S&P 500 through ex-sector ETFs like the S&P 500 Ex-Health Care ETF (NYSEArca: SPXV) and the S&P 500 Ex-Technology ETF (NYSEArca: SPXT).
“An investment in the S&P 500 that excludes a particular sector gives you the flexibility to tailor your core U.S. equity exposure,” according to ProShares. “It can replace a traditional S&P 500 fund, allowing you to underweight or even eliminate a sector in your portfolio.”