When it comes to the world of sector investing, the SPDR Select Sector ETFs have a rather dominant stronghold in each of their respective sectors. Additionally, one can also look to Vanguard and Fidelity for cheap market-cap weighted exposure at the sector level. While Vanguard and Fidelity offer cheaper options than State Street, the Select SPDRs have been around since 1998.
Among the hottest topics in the market now is the growing implementation of “multi-factor” ETFs. For the most part, a majority of the discussion is focused around these methodologies applied to a larger universe like large-cap stocks, developed international stocks etc. Multi-factor ETFs are essentially becoming a staple offering among most ETF providers. For these purposes, I wanted to get a bit more granular and look at the multi-factor approach applied at the sectors of the S&P (excluding Real Estate). In addition to the size and cost of these ETFs, I also wanted to see if a“smart-beta” approach has aided in performance.
While John Hancock and iShares launched their suite of sector ETFs within the last 2 years, First Trust has applied their Alphadex methodology at the sector level since 2007. Lastly, although not a multi-factor approach per se, Powershares launched a line of Dorsey Wright momentum-based sector ETFs in 2006.
In the tables below you will find the sectors of the S&P along with ETFs offering respective sector exposure. Performance has also been run along with top and bottom performance to highlight some of the rather large dispersions among ETFs tracking the same sector. Assets in each category are very top heavy, with the SPDR ETFS at the top and accounting for the lion’s share of assets.
Energy – It’s been a rough ride for energy names recently but the Powershares Momentum ETF was hit particularly hard. Over a 3-Year period, it’s been plain ol’ market-cap weighting at the top
Discretionary – Lets call this the “Amazon” effect because the ETFs with the largest weight there have pulled ahead recently. Take note of the First Trust Discretionary ETF, which only has a 1.13% weight to Amazon. Market-cap weighting schematics dominate performance here.
Energy, Financials, Technology
Materials, Utilities, Industrials
Discretionary, Staples, HealthCare