There are many favorite sayings for avid sector investors. “Individual stocks come and go, but industry sectors never die,” is one such expression.
The basic idea of sector investing is to focus on major economic investment themes and the specific sectors that stand to benefit the most. A sector strategy reduces the need for researching individual securities and also eliminates the risk of single stocks by taking a more diversified approach.
There are more than 200 sector ETFs, making it one of the largest ETF categories. Let’s analyze some of this year’s top-performing industry sectors.
Even though it’s the tiniest S&P 500 industry sector, materials (XLB) are so far the top-performing S&P sector. XLB has climbed around 36 percent (performance figures are YTD through September 30 market close). This bested the broader S&P 500 (SPY) by 19 percent.
Materials stocks are closely connected to commodities. They cover industries like chemical makers, construction materials, containers and packaging, metals and mining, along with paper and forest products.
Other ETFs that invest in commodity stocks but with a global approach include the Market Vectors-RVE Hard Assets Producers ETF (HAP). The fund follows the Rogers Van Eck Hard Assets Producers Index, which consists of companies engaged in the agriculture, energy, metals and mining, forest products, and water.
The Hard Assets Producers Index is a modified capitalization weighted, float-adjusted index. The index is rebalanced quarterly and reconstituted annually. HAP charges 0.65 percent.
Technology stocks (XLK) have risen 35.4 percent year-to-date and are the second best performing industry sector within the S&P 500. The technology industry accounts for 21 percent of the S&P 500′s overall sector weighting, making it the largest sector within the index.
With almost $4 billion in assets, XLK is the largest technology ETF. There are almost 80 technology stocks inside XLK covering key segments like networking firms, semiconductor producers and software makers.