These exchange-traded funds focus on stocks from one economic sector; most buy only domestically.
The single-sector ETFs here have attracted $300 billion of customers. Deservedly?
Sector funds have their utility. If most of your wealth is in individual stocks selected haphazardly over the years, you could use sector funds to fill in gaps. Maybe you are overweight venerable blue chips like JP Morgan Chase and Procter & Gamble and underweight speculative stocks; adding a technology ETF could make sense.
Our chapter on sector funds features 13 Honor Roll funds in ten categories. A fund gets this designation if it warrants a B or better grade for liquidity and is also very cheap—very cheap being defined as either being near the top of its category in cost efficiency or having a negative holding cost.
Six sector funds are in the negative-cost zone. They get there by hauling in revenue from securities lending. Invesco’s PowerShares WilderHill Clean Energy (PBW) is listed at -$2,437; SPDR S&P Telecom (XTL) at -$627.
You have to think twice before plunging into a sector where lending fees are rich. That means a lot of short-sellers are so sure the stocks will disintegrate that they will pay a premium to borrow the shares. But if you are going to buy risky solar or telecom stocks anyway, you’d be a fool not to own them via a fund that brings you stock-loan revenue. Lending premiums on shares you hold directly generally get pilfered by the broker.
“Electric utility” describes most of the stocks in most of that sector’s ETFs. But there are a few water utilities and other firms in the mix.
Best ETFs: Sector Funds
Clean Energy
| Ticker | Exchange-Traded Fund | Holding cost1 | Liquidity score2 | Assets ($bil) |
| PBW | PowerShares WilderHill Clean Energy | -$2,437 | D | 0.1 |
| ICLN | iShares Global Clean Energy | -598 | C | 0.2 |
| PBD | PowerShares Global Clean Energy | 418 | F | 0.1 |
Consumer discretionary
| XRT | SPDR S&P Retail* |
50 | A | 0.3 |
| VCR | Vanguard Consumer Discretionary | 108 | B | 2.7 |
| FDIS | Fidelity MSCI Consumer Discret | 143 | B | 0.5 |
| PSCD | PowerShares S&P SmCap Cnsmr Discret | 187 | D | 0.1 |
| XLY | Consumer Discret Sel Sect SPDR | 196 | A+ | 12.9 |
| XHB | SPDR S&P Homebuilders | 529 | A | 0.9 |
| RTH | VanEck Vectors Retail | 568 | B | 0.1 |
| RCD | PowerShares S&P 500 EqlWt CnsmDisc | 665 | C | 0.1 |
Consumer staples
| VDC | Vanguard Consumer Staples* |
155 | A | 3.5 |
| FSTA | Fidelity MSCI Consumer Staples | 157 | C | 0.2 |
| PSCC | PowerShares S&P SmallCap Cnsmr Stapl | 159 | D | 0.05 |
| XLP | Consumer Staples Select Sector SPDR | 214 | A | 7.7 |
| RHS | PowerShares S&P 500 EqlWtCnsmStapl | 646 | B | 0.4 |
Electric utilities
| FUTY | Fidelity MSCI Utilities* | 145 | B | 0.3 |
| VPU | Vanguard Utilities | 166 | A | 2.6 |
| XLU | Utilities Select Sector SPDR | 214 | A+ | 7.4 |
| PSCU | PowerShares S&P SmallCap Utilities | 465 | D | 0.05 |
| RYU | PowerShares S&P 500 Eql Wt Utilts | 666 | C | 0.1 |
Financials
| FNCL | Fidelity MSCI Financials* | 143 | B | 1.6 |
| VFH | Vanguard Financials | 163 | A | 8.3 |
| XLF | Financial Select Sector SPDR | 216 | A | 31.9 |
| PSCF | PowerShares S&P SmallCap Financials | 456 | D | 0.2 |
| KRE | SPDR S&P Regional Banking | 551 | A+ | 4.8 |
| KCE | SPDR S&P Capital Markets | 552 | C | 0.1 |
| KBE | SPDR S&P Bank | 561 | A | 4.1 |
| KBWB | PowerShares KBW Bank | 568 | A | 1.2 |
| KIE | SPDR S&P Insurance | 568 | B | 0.9 |
| KBWP | PowerShares KBW Prpty & Casualty Ins | 579 | C | 0.1 |
| KBWR | PowerShares KBW Regional Banking | 592 | C | 0.2 |
| FNCF | iShares Edge MSCI Multifactor Fincls | 604 | F | 0.01 |
| RYF | PowerShares S&P 500 Eql Wt Fincl | 659 | B | 0.4 |
Global sectors
| VNQI | Vanguard Global ex-US Real Est* |
71 | A | 6.1 |
| REET | iShares Global REIT | 215 | B | 0.9 |
| GII | SPDR S&P Global Infrastructure | 608 | C | 0.2 |
| GNR | SPDR S&P Global Natural Resources | 616 | B | 1.5 |
Industrials
| FIDU | Fidelity MSCI Industrials* |
146 | B | 0.5 |
| VIS | Vanguard Industrials | 168 | B | 3.5 |
| XLI | Industrial Select Sector SPDR | 210 | A+ | 12.1 |
| PSCI | PowerShares S&P SmallCap Industrials | 518 | D | 0.1 |
| XTN | SPDR S&P Transportation | 544 | B | 0.2 |
| XAR | SPDR S&P Aerospace & Defense | 544 | B | 1.3 |
| ITA | iShares U.S. Aerospace & Defense | 652 | A | 5.9 |
Medical
| PBE | PowerShares Dynamic Biotechnology & Genome | -879 | C | 0.2 |
| XBI | SPDR S&P Biotech | 112 | A | 4.7 |
| VHT | Vanguard Health Care | 144 | A | 7.0 |
| FHLC | Fidelity MSCI Health Care | 145 | B | 1.1 |
| XPH | SPDR S&P Pharmaceuticals | 174 | B | 0.3 |
| XLV | Health Care Select Sector SPDR | 212 | A+ | 14.7 |
| IHE | iShares U.S. Pharmaceuticals | 292 | B | 0.4 |
| PSCH | PowerShares S&P SmallCap Health Care | 397 | C | 0.5 |
| XHE | SPDR S&P Health Care Equipment | 561 | C | 0.3 |
| IBB | iShares Nasdaq Biotechnology | 562 | A | 8.9 |
| PPH | VanEck Vectors Pharmaceutical | 569 | B | 0.2 |
| BBH | VanEck Vectors Biotech | 575 | B | 0.4 |
| XHS | SPDR S&P Health Care Services | 579 | D | 0.1 |
| HCRF | iShares Edge MSCI Multifactor HlthC | 610 | F | 0.01 |
| RYH | PowerShares S&P 500 Equal Wt HC | 649 | B | 0.6 |
Oil & gas
| FENY | Fidelity MSCI Energy* | 146 | B | 0.6 |
| VDE | Vanguard Energy | 151 | A | 4.3 |
| XES | SPDR S&P Oil & Gas Equipment&Svcs | 177 | B | 0.4 |
| XLE | Energy Select Sector SPDR | 203 | A+ | 18.6 |
| XOP | SPDR S&P Oil & Gas Explor & Prodtn | 434 | A | 2.8 |
| IEZ | iShares U.S. Oil Equipment & Services | 470 | B | 0.2 |
| PSCE | PowerShares S&P SmallCap Energy | 491 | D | 0.1 |
| OIH | VanEck Vectors Oil Services | 567 | A | 1.7 |
| RYE | PowerShares S&P 500 Eql Wt Energy | 660 | B | 0.2 |
| FILL | iShares MSCI Global Energy Producers | 683 | F | 0.04 |
Pipelines
| TPYP | Tortoise North American Pipeline | 685 | D | 0.1 |
Precious metals mining
| SLVP | iShares MSCI Global Silver Miners | 135 | D | 0.1 |
| RING | iShares MSCI Global Gold Miners | 582 | B | 0.3 |
| PICK | iShares MSCI Global Mtls&Mng Prdcrs | 585 | C | 0.6 |
Real estate
| SCHH | Schwab US REIT ETF* | 112 | A | 4.1 |
| USRT | iShares Core US REIT* | 112 | B | 0.5 |
| FREL | Fidelity MSCI Real Estate | 161 | C | 0.4 |
| VNQ | Vanguard Real Estate | 194 | A+ | 30.2 |
| XLRE | Real Estate Select Sector SPDR | 213 | A | 2.3 |
| RWR | SPDR Dow Jones REIT | 402 | A | 2.4 |
| ICF | iShares Cohen & Steers REIT | 532 | A | 2.5 |
| KBWY | PowerShares KBW Premium Yld Eq REIT | 577 | B | 0.4 |
| WREI | Wilshire US REIT | 620 | F | 0.01 |
| EWRE | PowerShares S&P 500 Eql Wt Rl Estt | 664 | D | 0.02 |
Resources
| FMAT | Fidelity MSCI Materials* | 146 | B | 0.3 |
| VAW | Vanguard Materials | 161 | A | 2.7 |
| XLB | Materials Select Sector SPDR | 213 | A+ | 4.8 |
| XME | SPDR S&P Metals and Mining | 511 | A | 0.9 |
| PSCM | PowerShares S&P SmallCap Materials | 517 | D | 0.03 |
| VEGI | iShares MSCI Global Agricltr Prdcrs | 566 | F | 0.03 |
| NANR | SPDR S&P North American Natural Res | 576 | B | 0.7 |
| RTM | PowerShares S&P 500 Eql Wt Matrls | 661 | B | 0.2 |
Technology
| FTEC | Fidelity MSCI Information Tech* | 142 | A | 1.9 |
| VGT | Vanguard Information Technology* | 147 | A | 19.2 |
| XLK | Technology Select Sector SPDR | 210 | A+ | 20.4 |
| PSCT | PowerShares S&P SmallCap Info Tech | 378 | C | 0.4 |
| XSD | SPDR S&P Semiconductor | 384 | B | 0.3 |
| IGN | iShares North American Tech-Multimedia Networking | 467 | C | 0.1 |
| XWEB | SPDR S&P Internet E | 484 | F | 0.01 |
| XNTK | SPDR NYSE Technology | 514 | B | 0.9 |
| SMH | VanEck Vectors Semiconductor | 563 | A+ | 1.4 |
| XSW | SPDR S&P Software & Services | 570 | D | 0.1 |
| RYT | PowerShares S&P 500 Eql Wt Tech | 647 | B | 1.7 |
| XITK | SPDR FactSet Innovative Tech | 651 | D | 0.02 |
| XT | iShares Exponential Technologies | 664 | B | 2.3 |
Telecom
| XTL | SPDR S&P Telecom | -648 | C | 0.1 |
| VOX | Vanguard Communication Services* | -200 | B | 0.9 |
| IYZ | iShares U.S. Telecom* |
-168 | B | 0.3 |
| FCOM | Fidelity MSCI Telecommunication Svc | 165 | C | 0.1 |
*Best ETFs Honor Roll Member
1 Cumulative cost of holding a $10,000 position for a decade. Incorporates annual expense ratio, bid/ask spreads and cost offset from securities lending. 2Reflects bid/ask spreads and trading volume. A = easy to trade.
Data sources: Morningstar, Bloomberg, fund distributors.
