The stock market can be divided into 11 major sectors representing key areas of the economy. Each sector features many different publicly traded companies sharing the same broad focus. For the investors interesting in further exposure to specific areas of the economy, or attempting a sector-rotation strategy to reposition their portfolio, it may be best to consider ETFs in their preferred sector.
This article presents the 11 sectors of the stock market and the various ETFs that can be used to gain exposure for them.
What are the sectors of the stock market?
1. Energy Sector
The energy sector consists of oil and gas production and exploration companies, in addition to power firms, refineries, and other related operations. These companies mostly generate revenue tied to the price of crude oil, natural gas, and other commodities.
The most popular energy ETFs include:
- Energy Select Sector SPDR Fund (XLE)
- Alerian MLP ETF (AMLP)
- Vanguard Energy ETF (VDE)
- JPMorgan Alerian MLP Index ETN (AMJ)
- First Trust North American Energy Infrastructure Fund (EMLP)
2. Materials Sector
The material sector consists of mining, refining, forestry, chemical, and other related companies focused on discovering and developing raw materials. As these companies are at the beginning of the supply chain, they are also vulnerable to changes in the business cycle.
The most popular energy ETFs include:
- VanEck Vectors Gold Miners ETF (GDX)
- Materials Select Sector SPDR ETF (XLB)
- VanEck Vectors Junior Gold Miners ETF (GDXJ)
- Vanguard Materials ETF (VAW)
- Global X Lithium ETF (LIT)
3. Industrials Sector
The industrial sector consists of construction, machinery, fabrication, manufacturing, defense, and aerospace companies. This industry’s growth is driven by demand for building construction and manufactured products such as agricultural equipment.
The most popular industrial ETFs include:
- SPDR Dow Jones Industrial Average ETF (DIA)
- Industrial Select Sector SPDR Fund (XLI)
- iShares U.S. Aerospace & Defense ETF (ITA)
- Vanguard Industrials ETF (VIS)
- SPDR S&P Aerospace & Defense ETF (XAR)
4. Consumer Discretionary Sector
The consumer discretionary sector consists of retailers, apparel companies, media companies, consumer durables, and consumer service providers. These companies usually benefit from an improving economy based around accelerated consumer spending.
The most popular consumer discretionary ETFs include:
- Consumer Discretionary Select Sector SPDR Fund (XLY)
- Vanguard Consumer Discretionary ETF (VCR)
- iShares U.S. Home Construction ETF (ITB)
- Fidelity MSCI Consumer Discretionary Index ETF (FDIS)
- SPDR S&P Homebuilders ETF (XHB)
5. Consumer Staples Sector
The consumer staples sector focuses on food and beverage companies, in addition to companies creating products consumers have no desire to cut from their budgets. These companies can general withstand an economic downturn, as they are defensive plays.
The most popular consumer staples ETFs include:
- Consumer Staples Select Sector SPDR Fund (XLP)
- Vanguard Consumer Staples ETF (VDC)
- ETFMG Alternative Harvest ETF (MJ)
- iShares Global Consumer Staples ETF (KXI)
- VanEck Vectors Agribusiness ETF (MOO)
6. Health Care Sector
The healthcare sector consists of medical device manufacturers, hospital management firms, biotech companies, and many others. This is a growth opportunity and defensive play sector, as people will always require medical aid.
The most popular healthcare ETFs include:
- Health Care Select Sector SPDR Fund (XLV)
- Vanguard Healthcare ETF (VHT)
- iShares Nasdaq Biotechnology ETF (IBB)
- iShares U.S. Medical Devices ETF (IHI)
- SPDR S&P Biotech ETF (XBI)
7. Financials Sector
The financial sector consists of banks, insurance companies, real estate firms, and investment funds, among others. A majority of the revenue generated by this sector is generally coming from mortgages and loans gaining value as interest rates rise.
The most popular financial ETFs include:
- Financial Select Sector SPDR Fund (XLF)
- Vanguard Financials ETF (VFH)
- SPDR S&P Regional Banking ETF (KRE)
- SPDR S&P Bank ETF (KBE)
- iShares U.S. Financials ETF (IYF)
Check out ETFdb’s Stock Exposure tool to view and download a list of all ETFs that can provide you with exposure to a specific stock.
8. Information Technology Sector
The information technology sector consists of software developers, electronic manufacturers, and other information technology firms. These businesses are generally driven by upgrade cycles, as well as the general health of the economy, not to mention the growth, which has been robust over the years.
The most popular technology ETFs include:
- Technology Select Sector SPDR Fund (XLK)
- Vanguard Information Tech ETF (VGT)
- First Trust Dow Jones Internet Index (FDN)
- iShares U.S. Technology ETF (IYW)
- iShares Global Tech ETF (IXN)
9. Telecommunication Services Sector
The telecommunication services sector features cable companies, internet service providers, wireless providers, satellite companies, and many more. Consumers are generally providing recurring revenue for these companies, but some subsets of the industry face rapid change.
The most popular telecom ETFs include:
- Communication Services Select Sector SPDR Fund (XLC)
- Vanguard Communication Services ETF (VOX)
- iShares U.S. Telecommunications ETF (IYZ)
- Fidelity MSCI Communication Services Index ETF (FCOM)
- iShares Global Telecom ETF (IXP)
10. Utilities Sector
The utilities sector has a focus on gas, electric, and water companies, in addition to integrated providers. By charging consumers and businesses providing higher-than-average dividend yields, this sector is able to by and large generate a consistent recurring income.
The most popular utilities ETFs include:
- Utilities Select Sector SPDR Fund (XLU)
- Vanguard Utilities ETF (VPU)
- First Trust Utilities AlphaDEX (FXU)
- iShares U.S. Utilities ETF (IDU)
- Fidelity MSCI Utilities Index ETF (FUTY)
11. Real Estate Sector
The real estate sector involves companies invested in industrial, residential, and retail real estate. Rent income and real estate capital appreciation make up the main sources of revenue for these companies. The results tend to make this sector sensitive to interest rate changes.
The most popular real estate ETFs include:
- Vanguard Global Real Estate Index Fund ETF (VNQ)
- Schwab US REIT ETF (SCHH)
- iShares U.S. Real Estate ETF (IYR)
- Real Estate Select Sector SPDR Fund (XLRE)
- SPDR Dow Jones REIT ETF (RWR)
The Bottom Line
Each of the eleven sectors brings a unique dynamic to the stock market, affecting profitability in various ways. Investors looking to increase exposure to specific sectors can utilize any number of ETFs to achieve their asset allocation goals.