The stock market is often divided into 11 major sectors representing key areas of the economy. Within each sector, there are a number of different publicly traded companies that share the same broad focus. Investors interested in gaining exposure to a specific area of the economy, or implementing a sector-rotation strategy to position their portfolio, may want to consider exchange-traded funds (ETFs) in the sector of their choice.
In this article, we’ll take a look at the 11 sectors of the stock market and various ETFs that can be used to gain exposure to them.
1. Financials
The financial sector consists of banks, investment funds, insurance companies and real estate firms, among others. In general, the majority of the revenue generated by the sector comes from mortgages and loans that gain value as interest rates rise.
The most popular financial ETFs include:
View a complete list of financial ETFs here.
Check out our Stock Exposure tool to view and download a list of all ETFs that can provide you with exposure to a specific stock. For instance, the screenshot below shows a partial list of all ETFs holding J.P. Morgan Chase & Co.
2. Utilities
The utilities sector consists of electric, gas and water companies as well as integrated providers. In general, the sector generates consistent recurring income by charging consumers and businesses that provide higher-than-average dividend yields.
The most popular utilities ETFs include:
3. Consumer Discretionary
The consumer discretionary sector consists of retailers, media companies, consumer service providers, apparel companies and consumer durables. In general, these companies benefit from an improving economy when consumer spending accelerates.
The most popular consumer discretionary ETFs include:
- Consumer Discretionary Select Sector SPDR (XLY )
- Consumer Discretionary AlphaDEX Fund (FDX)
- Vanguard Consumer Discretion ETF (VCR )
View a complete list of consumer discretionary ETFs here.
Interested in searching sector-specific ETFs? You can check our sector Power Rankings here – where you can download the whole list of U.S. and international equity market ETFs in a spreadsheet to do your custom analysis.
Power Rankings are a unique way adopted by ETF Database to help investors understand 300+ market themes based on aggregated ETF data using investment metrics such as fund flows, return, AUM, expense ratio and dividend yield. Click here to view the whole list of themes.
Also, you can compare how consumer discretionary ETFs as a subgroup compare with other subgroups of sector ETFs – for example, financials.
4. Consumer Staples
The consumer staples sector consists of food and beverage companies as well as companies that create products consumers are unwilling to cut from their budgets. In general, these companies are defensive plays capable of withstanding an economic downturn.
The most popular consumer staples ETFs include:
5. Energy
The energy sector consists of oil and gas exploration and production companies, as well as integrated power firms, refineries and other operations. In general, these companies generate revenue that’s tied to the price of crude oil, natural gas and other commodities.
The most popular energy ETFs include:
6. Healthcare
The healthcare sector consists of biotechnology companies, hospital management firms, medical device manufacturers and many others. In general, the sector is considered to be both a growth opportunity and defensive play since people will always require medical aid.
The most popular healthcare ETFs include:
7. Industrials
The industrial sector consists of aerospace, defense, machinery, construction, fabrication and manufacturing companies. In general, the industry’s growth is driven by demand for building construction and manufactured products like agricultural equipment.
The most popular industrial ETFs include:
8. Technology
The technology sector consists of electronics manufacturers, software developers and information technology firms. In general, these businesses are driven by upgrade cycles and the general health of the economy, although growth has been robust over the years.
The most popular technology ETFs include:
9. Telecom
The telecom sector consists of wireless providers, cable companies, internet service providers and satellite companies, among others. In general, these companies generate recurring revenue from consumers, but some subsets of the industry are facing rapid change.
The most popular telecom ETFs include:
10. Materials
The materials sector consists of mining, refining, chemical, forestry and related companies that are focused on discovering and developing raw materials. Since these companies are at the beginning of the supply chain, they are vulnerable to changes in the business cycle.
The most popular materials ETFs include:
11. Real Estate
The real estate sector consists of companies invested in residential, industrial, and retail real estate. The main source of revenue for these companies comes from rent income and real estate capital appreciation. As a result, this sector is sensitive to interest rate changes.
The most popular real estate ETFs include:
The Bottom Line
The stock market is often divided into eleven sectors, with each sector having unique dynamics affecting its profitability. Investors looking to build exposure to specific sectors can use any number of ETFs to achieve their asset allocation goals.
ETF Tools section provides you all the necessary tools to screen, compare and analyze the vast universe of ETFs. Some of our tools have advanced features that are accessible only to ETF Database Pro members. You can sign up for the 14-day FREE trial now to activate all the features of these tools.
