What are sector ETFs?

Definition

Investors have embraced sector ETFs for both hedging and speculation purposes. These funds are highly liquid and have minimal tracking errors, even during intraday trading. While most sector ETFs focus on US stocks, some invest globally to capture the sector's worldwide performance. These funds are passively managed and use indexes from data services like Standard and Poor's and Dow Jones. Leveraged sector ETFs are also available, aiming to achieve double the underlying index's return, both on advancing and declining trading days.

ETFs are marketable securities that track an index, commodity, bonds, or a basket of assets. Unlike mutual funds, ETFs trade like common stocks on a stock exchange, experiencing price changes throughout the day. ETFs offer higher daily liquidity and lower fees than mutual fund shares, making them a more appealing option for individual investors. ETFs provide diversification and allow for short selling, buying on margin, and the purchase of one share. Additionally, most ETFs have lower expense ratios than the average mutual fund. When buying and selling ETFs, investors pay the same commission to brokers as they would on any regular order.

GICS Sectors

Sectors are commonly considered as general categories, with numerous sub-sectors and industries falling within each one. The primary industry standard for defining sector classifications is the Global Industry Classification Standard (GICS), developed by MSCI and S&P. This standard divides sectors into 11 categories, which can be further broken down into 24 industry groups, 68 industries, and 157 sub-industries. Each company publicly traded in the market is assigned a code from each grouping using the GICS coding system, which is used for detailed reporting and stock screening through financial technology. There are several ETFs that track benchmark indices in these sectors.