Sector ETFs can have advantages

Bob Toomey |

In our management of clients’ assets, we use exchange traded funds (or “ETFs”) for the majority of our investments. ETFs are a relatively newer form of a mutual fund which invest generally as passive indexes as opposed to traditional mutual funds which are actively managed. There are thousands of ETFs available which cover just about any type of investment one can think of. One ETF investment strategy that can be very productive is sector ETFs. These include ETFs focused on market sectors or industries such as industrials, energy, financials, and semiconductors, to name a few. We invest in sector ETFs in order to target areas of the market we believe are undervalued or in a superior position to outperform the broad market averages. We believe having some sector exposures can enhance portfolio performance while also reducing portfolio risk. By being a broad-based index, a sector ETF greatly reduces company-specific risk while allowing the investor to benefit from a broader sector move.