In today’s video I want to give you the best ETF that you can buy for each one of the 11 sectors of the stock market. As you know, diversifying is one of the best strategies you can use to reduce risk and maximize the long term return and investing in different sectors helps you avoid the risk of seeing your portfolio collapsing all of a sudden because of a sector crisis. My name is Rick and if you are new to this channel don’t forget to subscribe and drop a like for the youtube algorithm. And for this, I thank you very much. Now, I’m going to give you 1 ETF for every sector and you’ll find down here on the bar and on the description below all chapters of this video so that you can skip to the sector you are more interested in. If you live in Europe and you don’t have access to the ETFs that I’ll mention, drop me a comment below with the sector you are interested in and the broker app you use and I’ll tell you which ETF you can buy. Alright? So let’s start.
11. iShares Global Comm Services ETF (IXP)
Coming in at number 11 is the communication services sector, and for this I choose the iShares Global Comm Services ETF, with $258 million in assets under management, a dividend yield of 3.23% and an Expense Ratio of 0.4%, or 40$ every 10.000$ invested.
Now, although this might sound boring, do you know which are the two biggest companies of the communication sector?They are Alphabet, the company that owns Google, and Meta, that most people know as Facebook. Now tell me the truth, most likely you thought they belonged to the Technology Sector, but they don’t. At least in the stock market. Beside those you have boring companies like Verizon and AT&T, as well as companies like Netflix or Walt Disney.Now I’m not going to lie to you, regardless of the ETF you choose, this sector performed terribly in the past 10 years. If you check the stock chart of IXP, you’ll see two strong peaks in 2008 and in the end of 2021, but over the long term there has been no great return. Same thing if you check the Vanguard Communication Services ETF, so except if you were incredibly lucky and bought this Sector ETF right after the 2008 crisis or during the covid pandemic AND sold it at the end of 2021, you probably wouldn’t have enjoyed great returns in the last decade.
10. Materials Select Sector SPDR Fund (XLB)
As number 10 of my list, The Materials Select Sector SPDR Fund (XLB) is by far the most popular ETF in the materials sector with $4.7 billion in assets, a dividend yield of 2.39% and an Expense Ratio of 0.11%, or 11$ every 10.000$ invested.
The top holdings belong to the chemical sector, weighting over 70% of the total portfolio, followed by Metals & Mining with a little under 14%.
Like most other sectors, the Materials sector has seen a strong growth starting in march 2020 – outbreak of the Covid Pandemic – all the way to the end of 2021, followed by a strong decrease in 2022 that most probably hasn’t reached the end.
Over the last 10 years, though, this ETF delivered a yearly growth of 8.56%, meaning if you invested 10.000$ 10 years ago you would now have around 23.000$, and this is after taking into account the big price drop of this year.
9. Utilities Select Sector SPDR ETF (XLU)
Coming in at number 9, I’ll go with the Utility Sector and in particular the Utilities Select Sector SPDR ETF (Ticker: XLU). As of today this ETF has $15.3 billion in Assets under management, a Dividend yield of 3.4% and an expense ratio of 0.1%, or $10 annually for every $10,000 invested.
For those of you who don’t know, the utility sector includes public utilities like electricity, gas, and telephone-service providers. Utilities ETFs can be used as defensive holdings in a declining market like the one we are facing now. That is because of two reasons: one is that even in difficult times, people will always need water, gas and electricity. Another reason is that utility prices usually tend to be controlled by state utility commissions, making this sector more stable.
XLU has the highest amount of assets under management in the utility Sector and delivered similar, but slightly better results than the second best utility ETF which is the Vanguard Utilities ETF ( VPU). As of the end of September 2022, XLU delivered a return of 9.69% per year in the last 10 years, meaning if you invested 10.000$ 10 years ago you would now have roughly 26.000$.
The largest holding is NextEra Energy at roughly 16%, followed by Southern Company and DukeEnergy. If you consider the market turmoil of this year and the fact that this sector lost over 10% in the last month, if you are interested in utilities we might be heading into a suitable moment for buying into it.
8. Fidelity MSCI Industrials Index ETF (FIDU)
Alright, Number 8 is the Fidelity MSCI Industrials ETF, with $589 million in Assets under management, a trailing 12-month dividend yield of 1.6% and a cheap expense ratio of 0.08%, or $8 annually for every $10,000 invested.
Now, the industrial sector is vital to the global economy. So the recession of 2022 and other events like the Russian war in Ukraine have of course affected this sector. But it’s not the case for all industrial stocks. For example companies that operate in the defense and aerospace industry might benefit from the war, and those that provide waste management are usually relatively recession-proof. The ETF is an industrial sector ETF but still industrials cover around 92% of the holdings, with top 10 holdings including Union Pacific Corp, Raytheon Technologies and United Parcel Service. Like the other Fidelity ETF, this was created in 2013 and in the last 9 years it grew with a cumulated return of 73%, meaning $10.000 invested in the end of the 2013 would be worth $17.300 today.
Maybe not the greatest Return like the ones we’ll see in the next Sectors but the industrial sector is still the one that in a growing economy like the US in the long term will always deliver good results.
Coming in at number 7, we go to the Real Estate Sector with the Vanguard Real Estate ETF (VNQ). This ETF has $39 billion in Assets under management, a Dividend yield of 2.96% and an expense ratio of 0.12%, or $12 annually for every $10,000 invested.
Who said that to invest in Real Estate you need to buy Real Real Estate. Instead of buying real apartments or buildings, you can invest in the so-called REITs – Real Estate Investment Trusts, which are companies that own, operate or finance Real Estate to generate income. Because REITs are required to pay out 90% of taxable income to shareholders, typically you invest in REITs for a source of passive income in the form of dividends.
Launched in 2004, the Vanguard Real Estate ETF includes 167 stocks in all different REIT sectors like Health Care Reits, Hotel & Resort, Industrial and so on.
Now I have to say that I like the Real Estate sector for different reasons, one being the generous Dividends that this sector gives. And in the last years REITs have performed pretty well, but still I decided to put it in position 7 because starting in 2021 we entered a phase of increasing interest rates. In particular between January 2022 and today the 30-Year Fixed Rate Mortgage Average in the United States has skyrocketed from 3.22% to almost 7% in October 2022 Higher rates generally tend to decrease the value of properties and increase REIT borrowing costs, which of course negatively affects REIT profits and thus, their stock prices. In fact, since the beginning of 2022 we’ve seen a strong drop in stock prices for REITs, including the Vanguard ETF. So this is the reason why it only takes place 7 and I think it might be smart to wait until the fall flattens and the interest rates stabilize before investing in this market because I expect lower results for these companies in the near future.
6. Vanguard Energy ETF (VDE)
For the number 6, I go with the Energy Sector, and I stay on Vanguard with the Vanguard Energy ETF (VDE). This ETF has $9.8 billion in Assets under management, mostly in the Oil and Gas sector, a Dividend yield of 3.52% and an expense ratio of 0.1%, or $10 annually for every $10,000 invested.
Now, I could have mentioned here the biggest Energy ETF, The Energy Select Sector SPDR® Fund (Ticker XLE), which has a whopping $39 billion in Assets under Management, but this ETF includes only 23 holdings compared to the over 100 holdings of the Vanguard, making it much less diversified despite pretty much the same overall returns.
With record oil and gas prices set earlier this year, the stock market in 2022 has been defined strongly by the energy sector. Some of the biggest names in Oil companies, like Exxon Mobil and Chevron Corp. have seen significant gains in 2022 BUT the near future of energy stock prices is anyone’s guess.
Generally speaking, the energy sector is a sector where your long term investment returns will be strongly dependent on the period you invest, in fact don’t get fooled by the fact that Exxon has grown over 167% from the end of 2020, or that the same Vanguard Energy ETF had a similar result, because if you check the long term return of this sector you notice that if you had invested your money exactly 10 years ago, or even in 2008 before the crisis, right now your gains would be close to zero.
I don’t mean to frighten anyone and in fact the energy sector remains one of the most influential sectors for the stock market. I just want to advise you that a strong increase in energy stock prices is not an indication of future price developments. To conclude with this sector, if instead you are bullish on renewable energies you might want to consider something like the iShares Global Clean Energy ETF (ICLN).
5. Fidelity MSCI Financials Index ETF (FNCL)
Coming in at number 5, the financial sector with the Fidelity MSCI Financials Index ETF (FNCL). With $1.4 billion in Assets under management, a trailing 12-month dividend yield of 2.55% and again, as many fidelity ETFs, an extra cheap expense ratio of 0.08%, or $8 annually for every $10,000 invested, FNCL offers exposure to 389 companies in the financial sector, with Berkshire Hathaway in pole position with 8.39% and JPMorgan following with 7.51%, but it’s worth mentioning that the top 10 holdings weight almost 40% of the total 389.
Investing in the financial sector, in my opinion, is not easy, first of all because, for many people, the financial industry isn’t very exciting and second because the results of these companies are usually leveraged by a lot of debt so they are hard to interpret. As a result, this is a sector for which you must be particularly careful but using an ETF like this is already going to give you a huge advantage compared to having to decide yourself which bank or financial institution to invest in.
This Fidelity Fund was created in October 2013 and has seen steady growth since its inception except for the start of the covid pandemic in march 2020. In particular if you invested $10.000 at the beginning, roughly 9 years ago, you’d now have $18.200. And all of this considering a drop of around 23% from the peak in October 2021.
4. First Trust Consumer Staples AlphaDEX Fund (FXG)
Coming in at number 4, for the consumer staples sector I choose the First Trust Consumer Staples AlphaDEX Fund (FXG), with $590 million in Assets under management, a trailing 12-month dividend yield of 1.42% and an expense ratio of 0.64%, or $64 annually for every $10,000 invested.
For those of you who don’t know, c onsumer staples products are those that consumers keep buying regardless of their financial difficulties. This includes food and beverages, household goods, as well as alcohol and tobacco. Since these types of goods are considered basic necessities, this sector tends to be more stable than others in bad economic times.
The FXG in particular performed on average better than other famous ETFs in this sector like the Fidelity MSCI COnsumer Staples Index ETF and the Consumer Staples Select Sector SPDR Fund.
Compared to other ETFs that seek broad market exposure, FXG aims to pick winners and it does it using a quant-based model that weeds out underperforming stocks in the Russell 1000 using value and growth screeners, and on a quarterly basis the index is rebalanced.
The top 10 holdings occupy around 40% of the portfolio and include names like Lamb Weston Holdings, that is one of the world’s largest producers and processors of frozen french fries, as well as Bunge limited and Walgreens.
Now, in case you don’t like the high 0.64% expense ratio or you want to invest in more known companies you can go for the Fidelity ETF, Ticker FSTA, that had similar results, has a cheap 0.08% expense ratio and includes companies like Procter & Gamble, Coca Cola, Pepsi, Costco and Walmart.
3. Health Care Select Sector SPDR ETF (XLV)
Coming in at number 3, the Health Care Select Sector SPDR ETF (XLV), with $37 billion in Assets under management, a trailing 12-month dividend yield of 1.56% and an expense ratio of only 0.1%, or $10 annually for every $10,000 invested.
XLV tracks the Health Care Select Sector Index, which only holds health care stocks found in the S&P 500. Now, the healthcare sector is one of the more resilient and defensive sectors on the stock market. It is the second-largest sector by weight in the S&P 500 after information technology, at 13.3%. Health care stocks have several traits that make them desirable investments, like evergreen demand that protects their margins and competitive advantages, lower volatility relative to the market and higher-than-average dividend yields.
This ETF offers names like UnitedHealth Group, Johnson&Johnson, Abbvie, Pfizer and the sectors included are Pharmaceuticals, Health Care, Biotechnology and Life Sciences. Beyond the biggest names, the fund offers a total of about 64 companies, giving an adequate distribution within the broad Healthcare sector.
By comparing the Health Care Select Sector SPDR ETF with another big name like Vanguard, you can notice that the results of the SPDR have been slightly better in the short and in the long term. For example the XLV has given an annualized return of 13.52%in the last 10 years, which translates into a great $36.700 for a $10.000 investment. If you take a look at the long term development of this sector and in particular of this ETF, you understand that the healthcare sector is one of the sectors with the highest potential.
2. Vanguard Consumer Discretionary ETF (VCR)
Alright, number 2 is the Vanguard Consumer Discretionary ETF (VCR), with $4.7 billion in Assets under management, a trailing 12-month dividend yield of 0.91% and an expense ratio of 0.1%, or $10 annually for every $10,000 invested.
Consumer discretionary includ es companies that sell non-essential products, and to give you an idea this Vanguard ETF includes names like Amazon, with 21.52%, Tesla with 16.45% or McDonald’s with 4.06%, among other famous name like Home Depot, Nike or Starbucks. I personally like the Consumer Discretionary Sector because they are usually companies that we have something to do with in our lives so you kind of know them better than when you try to understand sectors like financial or materials. If you’ve read the book One Up on Wall Street from Peter Lynch, you know that he strongly suggests to invest in companies that you know well and in the book he makes a lot of examples of consumer discretionary companies, because if you think about it, we all know McDonald’s, we know Nike, we know Starbucks and we know the new cafe chain that opens next door maybe even before it gets public in the stock market. So we have a great advantage compared to investing in companies that we don’t really know the products of.
Returning to the Vanguard ETF, a really cool fact is that the consumer discretionary sector has drop over 30% Year to date, meaning it could be a wonderful opportunity to invest in this sector and see great returns in the long term, taking advantage of the market crisis we are experiencing.
1. The Technology Select Sector SPDR® Fund (XLK)
Number one is my favorite sector, which is Information Technology, and for this I choose The Technology Select Sector SPDR® Fund (XLK). $36 billion in Assets under management, a current dividend yield of 1.06% and an expense ratio of 0.1%, or $10 annually for every $10,000 invested make this ETF the best choice when it comes to the information technology sector.
Comparing this ETF with the other giant, the Vanguard Information technology ETF, you can see that the performances are very similar although in the last 5 years the SPDR is slightly better than the Vanguard, that’s why it wins the pole position on my list.
Over the last 10 years, this ETF delivered a crazy annualized yearly growth of 16.15%, meaning if you invested 10.000$ 10 years ago you would now have $44.700 as a result of that investment, and this even taking into account that the sector dropped over 30% this year.
Now, I’m always really bullish on the technology sector – with a long term sight. Technology is by far the most profitable sector and with the incredible pace of the technological evolution I’m pretty confident that even in the future this sector will be the one that will deliver the best results.
But remember, since it’s really hard to know if a tech company is going to grow or disappear after 5 years, I believe that choosing to buy an ETF in this sector is a far better decision than risking your savings with stock picking without knowing what’s really going to happen to them.
Sector ETFs – Conclusions
Alright these were my 11 picks on Sector ETFs, ranked from 11 to 1. If I could help you in any way with this video please drop me a like to help me out with the youtube algorithm, and consider subscribing if you like this kind of content. If you want to check out other videos of mine about ETF s I’ll link some here on the screen. Well, as always, thank you very much for watching ‘till the end, take care, and I’ll see you in the next video. Ciao!