Welcome! We are glad you’re here. We want to introduce you to the second post in our ETF Investing blog series – the ETFs of the eleven S&P 500 sectors. If you missed the first post of the series introducing readers to popular U.S. stock and bond ETFs, check it out here.
The S&P 500 Overview
The widely followed S&P 500 is comprised of eleven sectors representing twenty-four industry groups of the United States. The companies within the S&P 500 are sorted into sectors based on their primary business activities and objectives. Blending these sectors into one benchmark ensures that S&P 500 investors are diversifying their holdings, even if they’re holding one underlying holding.
The S&P 500 is comprised of companies representing:
- Information Technology
- Healthcare
- Financials
- Consumer Discretionary
- Communication Services
- Industrials
- Consumer Staples
- Energy
- Utilities
- Real Estate
- Materials
These sectors and their weight within the S&P 500 are shown in the picture
It’s important to recall that the S&P 500 is a market-weighted index. The index’s components are weighted according to their total market capitalization. A company’s market capitalization is calculated by multiplying its stock price by the number of outstanding shares.
In simple terms, bigger companies with higher market values have a larger impact on the index’s overall performance. For example, a company like Apple, worth trillions of dollars, has much more influence on the S&P 500 than a smaller company worth only a few billion.
This is profoundly demonstrated in the image above. Provided by finviz, the map depicts each S&P 500 sector, the companies composing the industry, a company’s size relative to its peers, and, in this instance, the 3-month performance of each asset. Please take a moment to review it; there is quite a bit to digest. Feel free to check it out here.
In contrast to a market-weight index, an equal-weighted index, like the Dow Jones Industrial Average, assigns the same weight to each component, regardless of its size, ensuring that smaller companies have the same level of influence as the largest ones. Using our previous map as an example, each square would be sized identically. When investing in index funds, it’s important to identify whether they are market-weight or equal-weight.
Why Invest in Specific Sectors?
Investors may focus on specific sectors to align their portfolios with their goals, risk tolerance, or economic outlook.
- Diversification: Allocating investments across sectors helps reduce risk by ensuring your portfolio isn’t overly reliant on one area of the economy.
- Capitalizing on Trends: Specific sectors often perform better under certain market conditions or economic cycles, allowing investors to benefit from those trends.
- Personal Beliefs and Values: Investors may target sectors they believe in, such as renewable energy or technology innovation, aligning investments with personal values.
- Risk Management: Some sectors, like Utilities and Consumer Staples, offer stability, while others, like Technology or Consumer Discretionary, provide growth opportunities.
- Targeting Growth or Income: Growth-oriented sectors like Technology and Communication Services appeal to those seeking capital appreciation, while Real Estate and Financials can provide steady income through dividends.
The S&P 500 Sector ETFs
The S&P sector ETFs provided in this post are market-weighted and only include companies within that industry. Below, we’ve provided a brief on each sector and popular ETF choices.
Information Technology
This sector includes companies that develop and produce technology products, software, and services. Think of hardware like computers, smartphones, software applications, and even IT services. Major players like Apple, Microsoft, and Nvidia drive innovation and are key contributors to this sector.
Appealing Qualities
- Offers growth opportunities due to constant innovation and the increasing role of technology in everyday life. It’s ideal for investors seeking high potential returns. As artificial intelligence and cloud computing continue to grow, tech companies increasingly drive economic innovation.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| VGT | Vanguard Information Technology ETF | $86 Billion | 0.59% | 0.10% |
| XLK | Technology Select Sector SPDR Fund | $73 Billion | 0.65% | 0.09% |
| IYW | iShares U.S. Technology ETF | $20 Billion | 0.21% | 0.39% |
| FTEC | Fidelity MSCI Information Technology Index ETF | $13 Billion | 0.48% | 0.08% |
Financials
Financials comprises banks, insurance companies, investment firms, and other financial service providers. These companies facilitate lending, investing, and managing money. Examples include JPMorgan Chase, Bank of America, Visa, and Warren Buffet’s Berkshire Hathaway.
Appealing Qualities
- It provides exposure to companies that are integral to the economy, with the potential for stable dividends and benefits from rising interest rates.
ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLF | Financials Select Sector SPDR Fund | $51 Billion | 1.37% | 0.09% |
| VFH | Vanguard Financials ETF | $12 Billion | 1.69% | 0.10% |
| IYF | iShares U.S. Financials ETF | $4 Billion | 1.24% | 0.39% |
| FNCL | Fidelity MSCI Financials Index ETF | $2 Billion | 1.46% | 0.08% |
Consumer Discretionary
This sector focuses on goods and services that are not essential but are purchased when consumers have disposable income. It includes retailers, entertainment, and luxury goods makers, with companies like Amazon, Tesla, and Nike leading the way.
Appealing Qualities
- Attractive during strong economic growth as consumers spend more on non-essential goods and services, potentially leading to higher company profits.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLY | Consumer Discretionary Select Sector SPDR Fund | $24 Billion | 0.71% | 0.09% |
| VCR | Vanguard Consumer Discretionary ETF | $7 Billion | 0.72% | 0.10% |
| IYC | iShares U.S. Consumer Discretionary ETF | $2 Billion | 0.46% | 0.39% |
| FDIS | Fidelity MSCI Consumer Discretionary Index ETF | $2 Billion | 0.68% | 0.08% |
Health Care
The Health Care sector includes pharmaceutical companies, biotechnology firms, medical equipment providers, and healthcare providers. It plays a critical role in innovation and patient care, with major companies like UnitedHealth Group, Johnson & Johnson, and Pfizer.
Appealing Qualities
- A defensive sector with long-term growth potential driven by an aging population and innovation in medical technology and pharmaceuticals.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLV | Health Care Select Sector SPDR Fund | $37 Billion | 1.64% | 0.09% |
| VHT | Vanguard Health Care ETF | $17 Billion | 1.50% | 0.10% |
| IYH | iShares U.S. Health Care ETF | $3 Billion | 1.23% | 0.39% |
| FHLC | Fidelity MSCI Health Care Index ETF | $3 Billion | 1.48% | 0.08% |
Communication Services
Home to companies that provide internet, entertainment, media, and telecommunication services, such as giants like Alphabet (Google), Meta (Facebook), Netflix, and Disney dominate this space.
Appealing Qualities
- Combines steady income (e.g., telecommunications) and growth (e.g., digital media and entertainment), appealing to conservative and aggressive investors.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLC | Communication Services Select Sector SPDR Fund | $21 Billion | 0.99% | 0.09% |
| VOX | Vanguard Communication Services ETF | $5 Billion | 1.04% | 0.10% |
| IYZ | iShares U.S. U.S Telecommunications ETF | $550 Million | 1.91% | 0.40% |
| FCOM | Fidelity MSCI Communication Services Index ETF | $1 Billion | 0.86% | 0.08% |
Industrials
Industrials include companies involved in manufacturing, construction, and transportation. These firms produce machinery, equipment, and aerospace products or provide services like logistics. Examples include Boeing, General Electric Aerospace, Caterpillar, and Union Pacific.
Appealing Qualities
- Reflects economic growth and infrastructure development, making it attractive during periods of economic expansion.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLI | Industrials Select Sector SPDR Fund | $21 Billion | 1.38% | 0.09% |
| VIS | Vanguard Industrials ETF | $6 Billion | 1.17% | 0.10% |
| IYJ | iShares U.S. Industrials ETF | $2 Billion | 0.85% | 0.39% |
| FIDU | Fidelity MSCI Industrials Index ETF | $1 Billion | 1.36% | 0.08% |
Consumer Staples
Focuses on essential goods people buy regardless of economic conditions, like food, beverages, household items, and personal care products. Examples include Procter & Gamble, Coca-Cola, and Walmart.
Appealing Qualities
- A stable, defensive sector that performs well during economic downturns as consumers continue to buy essential goods.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLP | Consumer Staples Sector SPDR Fund | $16 Billion | 2.82% | 0.09% |
| VDC | Vanguard Consumer Staples ETF | $7 Billion | 2.35% | 0.10% |
| IYK | iShares U.S. Consumer Staples ETF | $1 Billion | 2.65% | 0.40% |
| FSTA | Fidelity MSCI Consumer Staples Index ETF | $1 Billion | 2.27% | 0.08% |
Energy
The Energy sector includes oil, natural gas, and renewable energy production and distribution companies. It plays a critical role in powering the world, with ExxonMobil, Chevron, and ConocoPhillips among the leaders.
Appealing Qualities
- Can benefit from rising energy prices and global demand, offering diversification and sometimes attractive dividends.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLE | Energy Select Sector SPDR Fund | $36 Billion | 3.06% | 0.09% |
| VDE | Vanguard Energy ETF | $8 Billion | 2.95% | 0.10% |
| IYE | iShares U.S. Energy ETF | $1 Billion | 2.51% | 0.39% |
| FENY | Fidelity MSCI Energy Index ETF | $1 Billion | 2.78% | 0.08% |
Utilities
Utilities provide homes and businesses essential services such as electricity, water, and natural gas. These companies, like NextEra Energy and Duke Energy, are often viewed as stable investments with reliable dividends due to consistent demand.
Appealing Qualities
- Provides steady income through dividends, appealing to conservative investors or those looking for portfolio stability.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLU | Utilities Select Sector SPDR Fund | $17 Billion | 2.84% | 0.09% |
| VPU | Vanguard Utilities ETF | $7 Billion | 2.90% | 0.10% |
| IDU | iShares U.S. Utilities ETF | $1 Billion | 2.19% | 0.39% |
| FUTY | Fidelity MSCI Utilities Index ETF | $1 Billion | 2.84% | 0.08% |
Real Estate
The Real Estate sector includes companies that own, manage, or develop properties like office buildings, apartments, and shopping centers. Real estate investment trusts (REITs) like Prologis and American Tower dominate this sector.
Appealing Qualities
- A mix of income (via REIT dividends) and capital appreciation as property values rise; ideal for those seeking diversification and inflation protection.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLRE | Real Estate Select Sector SPDR Fund | $7 Billion | 3.40% | 0.09% |
| VNQ | Vanguard Real Estate ETF | $35 Billion | 3.83% | 0.13% |
| IYR | iShares U.S. Real Estate ETF | $4 Billion | 2.55% | 0.39% |
| FREL | Fidelity MSCI Real Estate Index ETF | $1 Billion | 3.46% | 0.08% |
Materials
The Materials sector focuses on companies that produce raw materials, such as chemicals, metals, and construction materials. These firms are essential for industries like construction and manufacturing, with examples like Dow, Dupont, and Newmont Corporation.
Appealing Qualities
- Useful during industrial growth or inflation periods, as demand for raw materials like metals and chemicals increases.
| ETF Ticker | Fund | AUM | Dividend Yield | Fund Expense Ratio |
| XLB | Materials Select Sector SPDR Fund | $5 Billion | 1.82% | 0.09% |
| VAW | Vanguard Materials ETF | $3 Billion | 1.62% | 0.10% |
| IYM | iShares U.S. Materials ETF | $550 Million | 1.56% | 0.39% |
| FMAT | Fidelity MSCI Materials Index ETF | $550 Million | 1.60% | 0.08% |
Closing
And there you have it—the eleven sectors of the S&P 500 and ETF indices, each with its own unique flavor and potential. Whether you’re chasing tech innovation, seeking stability in staples, or exploring the energy of… well, Energy, there’s a sector (and an ETF) for everyone. I generally steer more toward the Vanguard or the SPDR funds as they have lower fees and more assets under management.
Investing in sectors isn’t just about numbers—it’s about aligning your portfolio with your goals, values, and, let’s be honest, a bit of market savvy. So, whether you’re a cautious consumer or a daring disruptor, there’s something here for you to explore.
Next week, we’ll turn things up a notch (or maybe 2x or 3x) as we dive into the world of leveraged ETFs. Buckle up—it’s going to be a wild ride!
Until then, keep calm, and stay diversified. What’s your favorite sector or ETF? Let us know in the comments below, and don’t forget to subscribe if you enjoyed this article.
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