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There Are A Lot Of Vanguard Sector Funds In One New ETF

ETF Professor

The Armor US Equity Index ETF (NYSE: ARMR), an exchange traded fund that debuted Tuesday, brings a refreshed view to sector investing.

ARMR offers exposure to nine of the 11 S&P 500 sectors, using Vanguard ETFs, which are among the least expensive sector funds. The new follows the Armor US Equity Index.

“Rebalanced monthly, the index provides exposure to those sectors of the US economy that score the highest using Armor’s proprietary market performance indicator (MPI), which identifies the sectors best positioned to offer strong, long-term performance potential with lower expected downside risk,” according to Armor Index.

Why It's Important

Indicating that ARMR views energy and materials as weak sectors at the moment, the new ETF excludes the Vanguard Energy ETF (NYSE: VDE) and the Vanguard Materials ETF (NYSE: VAW).

The other nine ARMR holdings are equally-weighted, led by the Vanguard Information Technology ETF (NYSE: VGT) and the Vanguard Health Care ETF (NYSE: VHT).

“Only the sectors that score well in the MPI are included each month, represented by using highly liquid sector ETFs. If no sector appears attractive based on the MPI’s results, the index can shift to a focus on US Treasurys,” according to Armor Index.

Although the new ARMR is designed to provide downside, it's current makeup provides plenty of opportunity for upside capture – assuming the bull market remains in tact – via ETFs such as VGT and the Vanguard Communication Services ETF (NYSE: VOX).

All Vanguard sector ETFs are cap-weighted.

What's Next

“With the current bull market for US equities now in its second decade, investors are in uncharted territory. It’s only prudent that many will be thinking about how their portfolios will respond when the inevitable downturn arrives,” said Armor Index founder Jim Colquitt. “For investors, protecting against downside risk should be paramount; and for advisors, explaining to clients how you can help them protect against downside risk is going to be an important, and recurring, conversation in 2020.

ARMR charges 0.60% per year, or $60 on a $10,000 investment.

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