Dividing the economy into sectors is a useful way of classifying shares and other investments into categories. A sector is an area of the economy in which related businesses compete or produce the same or similar product and services. Well-known sectors include healthcare, technology, and infrastructure. Here we take a look at seven sector-specific ETFs.
Each sector will have unique economic drivers and risk characteristics. When one sector is expanding, others may be contracting, and vice versa. For this reason, diversifying across sectors is recommended. Diversifying within sectors by having exposure to multiple businesses in a sector is also recommended.
Exchange Traded Funds provide a quick and simple method for gaining exposure to a sector of the economy whilst also diversifying within it. ETFs are traded on the ASX like shares and hold baskets of securities providing for instant diversification. Sector ETFs are designed to provide exposure to specific sectors of the economy.
The VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (ASX: IFRA) provides exposure to a diversified portfolio of infrastructure securities listed in developed markets globally. Core infrastructure businesses span the telecommunications, transportation, and energy industries. Infrastructure is traditionally considered a defensive asset class which provides inflation-linked income.
The ETF delivered total returns of 20.01% in the year to 31 October 2019. Management costs are 0.52% per annum and distributions are made four times a year. Holdings are distributed across the United States (54.8%), Canada (8.8%), Australia (8.4%), Italy (5.3%), Spain (5.0%), Japan (4.4%), the United Kingdom (2.9%), China (2.7%), France (1.8%), New Zealand (1.6%), and elsewhere (4.3%).
Top holdings include Nextera Energy Inc (5.12%), Transurban Group (ASX: TCL) (4.88%), American Tower Corp (3.79%), Atlantia Spa (3.63%), Aena SME SA (3.57%), Duke Energy Corp (3.08%), Dominion Energy Inc (2.97%), The Southern Co (2.93%), Enbridge Inc (2.86%), and Crown Castle International Corp (2.27%).
The iShares Global Healthcare ETF (ASX: IXJ) provides investors with exposure to the S&P Global 1200 Healthcare Sector Index before fees and expenses. The Index measures the performance of biotechnology, healthcare, medical equipment, and pharmaceutical companies globally. The ETF returned 13.64% in the year to 31 October 2019.
Management fees are 0.47% and distributions are made twice yearly. Exposure is centred on the US (68.05%), followed by Switzerland (10.03%), Japan (6.06%), United Kingdom (4.80%), Germany (2.48%), Denmark (2.26%), and Australia (2.07%).
Top holdings include Johnson & Johnson (6.70%), UnitedHealth Group Inc (4.94%), Novartis AG (4.33%), Merck & Co Inc (4.24%), Roche Holding Par AG (4.05%), Pfizer (3.92%), Abbott Laboratories (2.80%), Medtronic PLC (2.77%) and Amgen Inc (2.60%).
ETFS Morningstar Global Technology ETF (ASX: TECH) offers focused exposure to the global technology sector. The ETF tracks the Morningstar Developed Markets Technology Moat Focused Index which is composed of equally weighted market leaders that have a competitive advantage over others in the same field.
Returns were 26.45% in the year to 31 October. Management fees are 0.45% per annum and distributions are made twice yearly. Holdings are distributed across the United States (89.5%), Australia (5.8%), Japan (2.4%), and Germany (2.1%).
As at 31 October, the ETF held 34 securities including Arrow Electronics (4.17%), Alphabet Inc A (4.13%), Palo Alto Networks (4.12%), Guidewire Software (4.10%), Microsoft Corp (4.06%), Microchip Technology (3.98%), Broadcom (3.94%), Sabre Corp (3.93%), Facebook Inc A (3.88%), and Salesforce.com (3.83%).
The Vanguard Australian Property Securities Index ETF (ASX: VAP) provides exposure to property securities listed on the ASX. Property sectors the ETF invests in include retail, office, industrial and diversified.
The ETF tracks the return of the S&P/ASX 300 A-REIT Index before taking into account fees, expenses and tax. The fund returned 21.90% in the year to 31 October. Management fees are 0.23% per annum and distributions are made quarterly.
Top holdings include Goodman Group (ASX: GMG) (17.28%), Scentre Group (ASX: SCG) (15.28%), Dexus Property Group (ASX: DXS) (9.72%), Mirvac Group (ASX: MGR) (9.52%), Stockland Corporation Ltd (ASX: SGP) (8.92%), GPT Group (ASX: GPT) (8.59%), Vicinity Centres (ASX: VCX) (6.43%), and Charter Hall Group (ASX: CHC) (3.92%).
The Betashares Global Sustainability Leaders ETF (ASX: ETHI) provides exposure to 100 large global shares (ex Australia) which are climate change leaders and not materially engaged in activities inconsistent with responsible investment considerations. Exclusion screens are applied to remove companies with exposure to fossil fuel, gambling, armaments, uranium/nuclear energy, junk food, animal cruelty, pornography, human rights and supply chain concerns.
The fund returned 31.15% in the year to 29 November. Management costs are 0.59% and distributions are made twice yearly. Holdings are distributed across the United States (75.2%), Switzerland (5.0%), Japan (4.4%), Hong Kong (3.1%), Netherlands (2.3%), Denmark (2.1%), Sweden (1.9%), Spain (1.5%), Finland (1.0%) and elsewhere (3.4%).
Top holdings include Apple (4.8%), MasterCard (4.3%), Visa (4.1%), UnitedHealth Group (4.0%), Home Depot (3.9%), Roche Holding (3.9%), Adobe Systems (2.4%), PayPal Holdings (2.0%), Nvidia Corp (2.0%), and Netflix (2.0%).
The VanEck Vectors China New Economy ETF (ASX: CNEW) provides exposure to companies in China having the best growth prospects in sectors making up ‘the New Economy’, namely technology, health care, consumer staples and consumer discretionary. The ETF tracks the CSI MarketGrader China New Economy Index. The Index aims to select the 120 companies in China with the best growth at reasonable price attributes, which are considered the best drivers of long-term capital appreciation.
The ETF has delivered total returns of 33.33% since inception in November last year. Management costs are 0.95% per annum and distributions are made once per year. Top holdings at the end of October included Wus Printed Circuit Kunshan (1.53), Luxshare Precision Industry (1.38%), Fujian Boss Software Development (1.36%), Shandong Yisheng Livestock & Poultry (1.29%), Autobio Diagnostics (1.24%), Shanxi Xinghuacun Fen Wine Factory (1.18%), and Changchun High & New Technology (1.14%).
The Betashares Global Cybersecurity ETF (ASX: HACK) provides exposure to leading companies in the cybersecurity sector. The ETF tracks the Nasdaq Consumer Technology Association Cybersecurity Index.
Returns were 17.79% in the year to 31 October. Management fees are 0.67% and distributions are made twice yearly. Holdings are distributed across the United States (82.5%), Israel (6.0%), Britain (5.6%), Japan (3.0%), France (2.5%), South Korea (0.3%), and elsewhere (0.1%).
Top holdings include Broadcom Inc (6.2%), Palo Alto Networks (6.2%), VMWare (6.1%), Okta Inc (5.7%), Cisco Systems (5.4%), Fortinet Inc (3.7%), Splunk (3.7%), Fireeye Inc (3.5%), and F5 Networks (3.2%).
Sector ETFs can provide diversified exposure to specific areas of the economy that are not perfectly correlated with other areas of the economy. This can be valuable in improving diversification across the broader portfolio.
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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ETFS Morningstar Global Technology ETF. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.