Consider these sector ETFs when investing for growth.
With the volatility of March now a distant memory, the stock market is flirting with new highs as the summer months draw near. That's because the economic slowdown caused by the global pandemic seems to be abating, with previous job losses slowly being recovered. Investors eager to explore growth opportunities once more may want to be a bit more tactical than simply buying the broader stock market, however, and may want to focus on sectors that will benefit most from this growth trend. Here are seven sector exchange-traded funds to consider as part of this strategy.
Health Care Select Sector SPDR Fund (ticker: XLV)
Few things are certain in the U.S. economy, but steadily rising health care costs are one of them. A Kaiser Family Foundation report showed that, when measured in constant dollars, U.S. health spending surged from $1.7 trillion in 1998 to $3.6 trillion in 2018 -- roughly doubling, even when you exclude the influence of inflation. The XLV health care ETF has become the gold standard for investors looking for exposure to medical companies. It's the simplest way to play the constant grind higher in health care spending, with big-name companies like Johnson & Johnson (JNJ) and insurer UnitedHealth Group (UNH). This ETF boasts a 10-year average return of 16.6%.
Expense ratio (net): 0.13%
iShares Nasdaq Biotechnology ETF (IBB)
Of course, some investors want to get a little more selective about the health care sector, given that entrenched giants like JNJ may not have as much runway as smaller, up-and-coming firms. That's what the iShares biotechnology sector ETF offers, with a focus on development-stage drugmakers instead of the more stable blue-chip stocks that make up much of XLV. This includes firms like gene therapy researcher Seattle Genetics (SGEN) and biotech Moderna (MRNA), as opposed to names like Pfizer (PFE). There is a bit more risk here, but it's offset by more upside potential. IBB also comes with a slightly higher expense ratio, at 0.47%.
Expense ratio (net): 0.47%
Vanguard Information Technology ETF (VGT)
Another sector that has a strong history of constant growth year in and year out is the technology sector. And with roughly $33 billion in assets under management, VGT is one of the most popular sector ETFs out there for investors looking to play this trend. The fund is heavily weighted in businesses that provide hardware, software and data processing solutions. VGT holds big names in the sector you likely know and love, including Apple (AAPL) and Microsoft (MSFT), providing exposure to the top tech companies in the world via a single holding. To top it off, the fund gained a whopping 48.7% last year for its annual total return.
Expense ratio: 0.10%
Invesco S&P SmallCap Information Technology ETF (PSCT)
As with health care, however, some investors are more interested in playing the true startups in the tech sector instead of the trillion-dollar megacorporations, which have already seen a lot of growth in prior years. This sector ETF from Invesco allows investors to focus only on smaller firms, with an average market value of about $1.6 billion per holding. Compare that to VGT, which has an average market value of more than $170 billion for its constituent stocks. PSCT includes picks such as Anixter International (AXE), a communications hardware and cybersecurity firm you may not otherwise have exposure to in your core portfolio holdings.
Expense ratio (net): 0.29%
Consumer Discretionary Select Sector SPDR Fund (XLY)
There's a well-worn factoid used by economists that profess 70% of the U.S. economy is driven by consumer spending. But when you dig deeper, it's hard to claim that certain expenses like groceries will see significant growth or contraction from month to month. Discretionary spending, on the other hand, does have the potential to move up in a big way when conditions are good -- and with the U.S. economy reopening in the wake of the recent pandemic, the time may be right to consider betting on spending growth. XLY is a sector ETF that gives you a footing in a wide array of stocks that can tap into this opportunity, such as apparel giant Nike (NKE) and travel portal Booking Holdings (BKNG).
Expense ratio (net): 0.13%
iShares U.S. Financials ETF (IYF)
When the economy is in growth mode, the financial sector typically benefits. That's because banks lend support to all manner of economic activity, from businesses that are expanding to consumers buying new homes. This sector ETF from iShares offers investors a way to play some of the most influential stocks in this area, including payments giant Visa (V) and megabank JPMorgan Chase (JPM), among others. As businesses and consumers spend more, it's natural for the financial sector to broadly benefit as a result.
Expense ratio (net): 0.42%
SPDR S&P Regional Banking ETF (KRE)
To supercharge your investments in the growth of the financial sector, investors can simply focus on smaller and regional banks that offer a more direct play on community lending. After all, the big banks have sprawling global operations that sometimes veer into sophisticated institutional products, while the components of KRE tend to be simply in the business of extending loans in their community. These include companies such as People's United Financial (PBCT), a financial firm with a network of about 450 branches, mostly located in New England. Banks like PBCT are much more focused on small business and consumer lending, and thus they may be a more direct play on this growth trend -- even if regional banks have less capital and come with a bit more risk as a result.
Expense ratio: 0.35%
Buy these seven sector ETFs for growth:
-- Health Care Select Sector SPDR Fund (XLV)
-- iShares Nasdaq Biotechnology ETF (IBB)
-- Vanguard Information Technology ETF (VGT)
-- Invesco S&P SmallCap Information Technology ETF (PSCT)
-- Consumer Discretionary Select Sector SPDR Fund (XLY)
-- iShares U.S. Financials ETF (IYF)
-- SPDR S&P Regional Banking ETF (KRE)
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