Sector Smackdown

A reader asked which sector funds I prefer; the iShares S&P Global funds or the WisdomTree foreign sector funds.

I use a couple of sector ETFs broadly and some accounts own quite a few sector ETFs as a function of account size or tolerance for single stock volatility.

Well, one family is not better than the other. Each of the two do something that is a little different than the other. The iShares line combines foreign and domestic with some of the funds having a lot of domestic and some others having a lot of foreign. The WisdomTree line is all foreign and by virtue of the dividend weighting it seems that all the funds skew to certain countries like the UK and Australia.

If you want to build your portfolio by sector and want to capture any sectors using an ETF I think you need to look at all the families to find the best one for your portfolio which includes the sector SPDRs, the iShares domestic, the equal weights, the PowerShares sector funds, some of the strays like First Trust and some of the themed funds that could be proxies for sectors.

Doing this requires looking under the hood. Does a given fund have too much in one stock (a stock you don’t like)? Does the fund tilt too far in favor of a particular sub-sector? Is a particular sector a better place to add foreign or domestic? What about yield, volatility or country makeup?

The point here is probably that selecting an ETF takes work. There is possibly less work involved than selecting a stock and there might be less risk than a stock but an ETF or other product is not a green light to take short cuts.

2 Comments

  1. I agree 100%. ETFs require due diligence by the investor. One must look at the portfolio and decide if one – or another- ETF is in line with expectations.

    One advantage of ETFs is that they almost always report their portfolio daily. Looking at the portfolio should not become an hourly obesssion…but examining the portfolio your hard-earned money has purchased every few weeks is prudent.

    This blog has been at the forefront presenting ETFs to readers in a thoughtful manner.
    Absorb Roger’s continuing message about this investment vehicle.

    Reply

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Sector Smackdown

A reader asked which sector funds I prefer; the iShares S&P Global funds or the WisdomTree foreign sector funds.

I use a couple of sector ETFs broadly and some accounts own quite a few sector ETFs as a function of account size or tolerance for single stock volatility.

Well, one family is not better than the other. Each of the two do something that is a little different than the other. The iShares line combines foreign and domestic with some of the funds having a lot of domestic and some others having a lot of foreign. The WisdomTree line is all foreign and by virtue of the dividend weighting it seems that all the funds skew to certain countries like the UK and Australia.

If you want to build your portfolio by sector and want to capture any sectors using an ETF I think you need to look at all the families to find the best one for your portfolio which includes the sector SPDRs, the iShares domestic, the equal weights, the PowerShares sector funds, some of the strays like First Trust and some of the themed funds that could be proxies for sectors.

Doing this requires looking under the hood. Does a given fund have too much in one stock (a stock you don’t like)? Does the fund tilt too far in favor of a particular sub-sector? Is a particular sector a better place to add foreign or domestic? What about yield, volatility or country makeup?

The point here is probably that selecting an ETF takes work. There is possibly less work involved than selecting a stock and there might be less risk than a stock but an ETF or other product is not a green light to take short cuts.

Submit a Comment

Your email address will not be published.

WP-SpamFree by Pole Position Marketing