Best Sector Etfs To Invest In Now

Exchange-Traded Funds (ETFs) are a popular investment vehicle that allows investors to gain exposure to a specific industry or sector of the market. Sector ETFs are a type of ETF that focuses on a particular sector, such as energy, healthcare, or technology, and can provide a cost-effective way to invest in a diverse range of companies within that sector. They are typically more volatile than broader-market ETFs due to their narrow focus, but this can also create opportunities for higher returns. When choosing a sector ETF, investors should consider factors such as geographic focus, market capitalization requirements, and the specific industries included within the ETF. This article will explore the benefits, risks, and considerations of investing in sector ETFs, as well as provide examples of popular sector ETFs in various industries.

Consumer discretionary ETFs

Consumer discretionary stocks can be a good way to tap into the spending power of consumers, particularly in the case of American consumers. The largest and most liquid ETF in this space is the Consumer Discretionary Select Sector SPDR Fund (XLY), which covers around 50 of the largest names in the sector, including Amazon and Tesla. The iShares U.S. Consumer Discretionary ETF (IYC) is another option, which seeks to track the investment results of an index composed of U.S. equities in the consumer discretionary sector.

The consumer discretionary sector tends to be more volatile than other sectors, so it is important to be aware of the potential for wide swings in the value of your investments and to ensure that you are comfortable with the increased risk and volatility that these ETFs can present.

Consumer staples ETFs

Consumer staples exchange-traded funds (ETFs) are a good option for investors looking for broad exposure to the consumer staples sector. Consumer staples are essential goods that consumers are unable or unwilling to cut from their budgets, regardless of their financial situation or the state of the economy. These include food and beverages, household goods, hygiene products, alcohol, and tobacco.

Consumer staples stocks tend to be more stable and less volatile than other segments of the equity markets, and the sector has outperformed the broader market over the past year. As such, consumer staples ETFs are a relatively low-risk option for investors.

Some of the best-performing consumer staples ETFs include:

• First Trust Consumer Staples AlphaDEX Fund (FXG)
• First Trust Nasdaq Food & Beverage ETF (FTXG)
• Invesco Dynamic Food & Beverage ETF (PBJ)

The top holdings of these ETFs include companies such as Mckesson Corporation, Kellogg Company, and General Mills Inc.

Other popular consumer staples ETFs include:

• Consumer Staples Select Sector SPDR Fund (XLP)
• IShares MSCI World Consumer Staples Sector ESG UCITS ETF
• Vanguard Consumer Staples ETF
• Invesco Food & Beverage ETF

When investing in consumer staples ETFs, it is important to remember that while these funds can provide stable returns, they are still subject to market volatility and risk.

Energy ETFs

Energy Select Sector SPDR Fund (XLE)

This ETF offers exposure to the energy sector, with holdings in large-cap energy stocks such as Exxon Mobil Corp. and Chevron Corp. It has over $36 billion in assets under management and charges a 0.09% expense ratio.

Vanguard Energy ETF (VDE)

VDE provides diversified exposure to companies in the energy sector, including those involved in the exploration and production of energy products. It tracks the MSCI US Investable Market Energy 25/50 Index, capturing a broad range of holdings with a slightly greater focus on mid-cap and small-cap energy stocks. The ETF has a 0.1% expense ratio.

IShares Global Energy ETF (IXC)

IXC is a globally diversified energy ETF that tracks the S&P Global 1200 Energy 4.5/22.5/45 Capped Index. In addition to ExxonMobil and Chevron, its top holdings include Shell PLC, BP PLC, and TotalEnergies SE. It charges a 0.41% expense ratio.

Invesco Energy Exploration & Production ETF (PXE)

PXE selects upstream producers and explorers based on price momentum, earnings momentum, quality, management action, and value. Its top holdings include Phillips 66, EOG Resources Inc., Marathon Petroleum Corp., and Valero Energy Corp. The ETF has a 0.6% expense ratio.

Invesco S&P 500 Equal Weight Energy ETF (RSPG)

RSPG is an equal-weighted energy sector ETF that helps mitigate concentration risk by reducing the weight of large-cap stocks. It employs a quarterly rebalancing process that buys low and sells high, contributing to its 0.4% expense ratio.

Global X MLP & Energy Infrastructure ETF (MLPX)

MLPX focuses on midstream energy companies, including master limited partnerships and incorporated pipelines. Its holdings include Energy Transfer LP, Enterprise Products Partners LP, Enbridge Inc., and Kinder Morgan Inc. The ETF offers a decent 5.1% 30-day SEC yield.

Healthcare ETFs

IShares Global Healthcare ETF (IXJ)

IXJ is one of the top-performing healthcare ETFs in 2024, with a year-to-date gain of 13.9% and a 19.9% gain over the past year. The fund has a healthy 11.4% annualised return over five years and a 1.2% trailing 12-month dividend yield. It is heavily invested in some of the biggest biopharma companies, including Eli Lilly and Co., Merck & Co. Inc., and AstraZeneca PLC. The fund also offers exposure to worldwide healthcare companies, particularly in pharmaceuticals, biotechnology, and medical devices, as well as emerging areas such as robotics and artificial intelligence. However, it has a slightly higher expense ratio of 0.41% compared to its peers.

Vanguard Health Care ETF (VHT)

This large healthcare fund has $18.5 billion in assets and a low expense ratio of 0.1%. It is up 13.1% in 2024 so far and offers a steady 1.2% 12-month trailing dividend. It is 100% invested in healthcare stocks, which is a higher allocation than many other sector ETFs. Most stocks in the VHT portfolio have "buy" ratings from Wall Street analysts, and the average price target represents a 25.8% upside from the recent buy-in price. This ETF is a good option for investors seeking a low-cost, diversified healthcare fund with a decent dividend yield.

Fidelity Select Health Care (FSPHX)

FSPHX is heavily weighted towards biotechnology stocks, with Eli Lilly, Regeneron Pharmaceuticals Inc., and Merck making up a significant portion of the fund. It is up 13.2% year-to-date, just ahead of the S&P Health Care Index, and has been a steady performer with a 9.8% average annual return over the past 10 years. The fund has been managed by the same manager since 2008, providing experience and stability. However, it has a higher expense ratio of 0.65%.

Health Care Select Sector SPDR ETF (XLV)

With $41.5 billion in assets, XLV is one of the largest healthcare ETFs. It has had strong performance, with a year-to-date gain of 13.5% and a 19.9% gain over the past year. The fund has a low expense ratio of 0.09% and offers a trailing yield of 1.4%. XLV is top-heavy, with its top 10 holdings making up 57% of assets, and allocates its lineup among pharmaceuticals, health care services, and equipment and supply stocks. It is a passively managed fund that offers investors a low-cost entryway into large healthcare stocks while reducing risk through diversification.

Invesco S&P 500 Equal Weight Health Care ETF (RSPH)

RSPH is a smaller healthcare fund with $946 million in assets. It seeks to emulate the S&P 500 Equal Weight Health Care Index and is 100% invested in healthcare stocks, with a focus on biotechnology. The fund is more affordable than its peers, with an expense ratio of 0.4%, and has outperformed its category over the past three, five, and 10 years. RSPH offers stability with a lower turnover rate of 26% and a low entry price.

SPDR S&P Biotech ETF (XBI)

XBI tracks the S&P Biotechnology Select Industry Index and favours smaller and midsize biotech companies, adding a higher element of risk. The fund has slightly trailed its category average in 2024 but has a strong 34.2% return by net asset value over the past year. It uses a modified equal-weighting strategy to balance small-, mid-, and large-cap stocks, with an emphasis on biopharma. Biotech investors are expecting bigger gains in 2024, and XBI is well-positioned to benefit from this.

Real estate ETFs

Real estate exchange-traded funds (ETFs) are a great way to gain exposure to the real estate market without the complexities of buying a storefront or rental property. Real estate investment trusts (REITs) are companies that own, develop, and manage income-producing real estate properties. By law, REITs must pay out at least 90% of their taxable income to shareholders as dividends each year.

• Vanguard Real Estate ETF (VNQ): This ETF has a large portfolio of over 165 companies, with a focus on core-style equities in the mid-cap range. It has a low fee structure and a higher dividend yield than its category average. VNQ invests in a variety of real estate sectors, including telecommunications tower REITs and industrial REITs, offering stable and diversified income.
• IShares Core U.S. REIT ETF (USRT): With a negligible expense ratio, USRT provides exposure to the entire U.S. real estate market, excluding infrastructure, mortgage, and timber sectors. It holds around 135 mid-cap companies, mainly in the core style, and has a dividend yield above the category average. USRT has consistently outperformed its category average in total returns over the past one, three, five, and ten years.
• The Real Estate Select Sector SPDR Fund (XLRE): XLRE aims to deliver the returns of real estate firms in the S&P 500, excluding mortgage REITs. It holds about 30 securities with projected earnings growth of around 6% over the next three to five years, outpacing its peers. XLRE has a low expense ratio, ensuring more of your investment goes into the fund.
• JPMorgan BetaBuilders MSCI U.S. REIT ETF (BBRE): BBRE is a passively managed REIT that tracks the MSCI US REIT Custom Capped Index, focusing on small- and mid-cap real estate firms. It holds about 125 highly concentrated positions, with its top 10 holdings making up nearly 50% of the fund's value. BBRE has outperformed its category average over the past one, three, and five years, and its low expense ratio boosts its performance.
• Nuveen Short-Term REIT ETF (NURE): NURE invests in a small number of U.S. REITs with short-term leases, including apartment REITs, hotels, self-storage facilities, and manufactured homes. This strategy makes the fund less sensitive to changes in interest rates. NURE has demonstrated strong performance over the past three and five years, outperforming its category average, and has shown less volatility during market downturns.
• Invesco S&P 500 Equal Weight Real Estate ETF (RSPR): RSPR invests in at least 90% of the S&P 500 real estate sector companies, with equal weight given to each company. It has a value orientation, focusing on mid-cap core companies with stable earnings and income potential. RSPR has an uptrending dividend yield, currently over a full percentage point higher than the S&P 500 average, and has outperformed its Morningstar peer group average in total returns over the past one, three, and five years.

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