11 Top Sector ETFs to Buy

For the majority of investors, a simple and diversified approach will do the trick. In a one-stop index fund like the SPDR Portfolio S&P 500 ETF (ticker: SPLG) for instance, anyone can get a piece of the 500 largest U.S. companies in a single holding that costs less than $70 a share. Furthermore, a preponderance of research shows that buying and holding an index fund like SPLG is an effective way to generate long-term returns.

Of course, many investors eventually want to get a bit more tactical with their approach. Maybe they see opportunity or risk in a certain part of the market, or maybe they want to reduce their risk profile, or maybe they want to tap into bigger dividends.

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The simplest way to look beyond the plain vanilla index funds is to lean into a sector or two that align with your investing goals. And the following 11 options represent the top sector ETFs to buy, based on the fact that they are all very affordable and highly capitalized funds:

ETF Sector Expense Ratio
Consumer Discretionary Select Sector SPDR Fund (XLY) Consumer discretionary 0.09%
Consumer Staples Select Sector SPDR Fund (XLP) Consumer staples 0.09%
Energy Select Sector SPDR Fund (XLE) Energy 0.09%
Financial Select Sector SPDR Fund (XLF) Financials 0.09%
Health Care Select Sector SPDR Fund (XLV) Health care 0.09%
Industrial Select Sector SPDR Fund (XLI) Industrials 0.09%
Vanguard Information Technology ETF (VGT) Information technology 0.10%
Vanguard Real Estate ETF (VNQ) Real estate 0.13%
Utilities Select Sector SPDR Fund (XLU) Utilities 0.09%
Materials Select Sector SPDR Fund (XLB) Materials 0.09%
Vanguard Communication Services ETF (VOX) Communication services 0.10%

Consumer Discretionary Select Sector SPDR Fund (XLY)

Sector: Consumer discretionary Assets: $18.5 billion Expense ratio: 0.09%, or $9 on every $10,000 invested Dividend yield: 0.8%

Companies that make their money from non-essential goods and services, such as luxury apparel or entertainment, are classified as consumer discretionary stocks. XLY is far and away the largest and most liquid ETF covering this space, focused on roughly 50 of the largest names in this sector including e-commerce king Amazon.com Inc. (AMZN) and electric-vehicle maker Tesla Inc. (TSLA). If you’re looking to tap into the spending power of Americans, there’s perhaps no better way to do so than this top sector ETF.

Consumer Staples Select Sector SPDR Fund (XLP)

Sector: Consumer staples Assets: $15.4 billion Expense ratio: 0.09% Dividend yield: 2.4%

In contrast to discretionary spending, “staples” are the kinds of goods that households simply can’t go without, such as food and personal hygiene products. Roughly 40 of the largest staples stocks out there make up this index, including Procter & Gamble Co. (PG), which makes a host of in-demand items like Pampers diapers, Gillette shaving products and Tide detergent. Staples retailers like Costco Wholesale Corp. (COST) are also represented here, as shoppers go there for essentials and not just to burn discretionary cash. The consumer staples sector tends to be more or less recession-proof as folks continue to spend in this category even if they cut back on big-ticket items like travel or furniture.

Energy Select Sector SPDR Fund (XLE)

Sector: Energy Assets: $37.9 billion Expense ratio: 0.09% Dividend yield: 3%

As you probably guessed, the energy sector is mainly made up of companies that drill for oil and gas or that provide equipment, services and infrastructure to related companies. There are some alternative energy companies in the sector, but they tend to be much smaller that the Big Oil players — and that means they get squeezed out of broad-based funds that tend to bias toward bigger companies.

That’s definitely the case with XLE, which comprises just 22 familiar energy giants, including Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP). You might think this is too small to be as diversified as other funds, but the vast majority of energy sector funds are weighted by market capitalization and are similarly top-heavy. Case in point: The Vanguard Energy ETF (VDE) holds positions in more than 100 individual companies but has nearly half of its assets in those same three leaders. That means your choice is either to go with smaller or more tactical funds, or stick with XLE — the most established energy sector ETF that is fully three times as large as VDE, the next-largest energy sector ETF on Wall Street.

Financial Select Sector SPDR Fund (XLF)

Sector: Financials Assets: $39 billion Expense ratio: 0.09% Dividend yield: 1.5%

Similar to the energy sector, the financial sector is dominated by a small group of mega-cap companies. Sure, you can find more modest-sized financial technology, or fintech, companies out there if you hunt for individual stocks. But the vast majority of financial sector ETFs focus on the same short list of companies that handle money through well-known banks, investment firms and insurance companies.

The Financial Select Sector SPDR Fund holds about 70 leaders in finance, including Warren Buffett’s investment house Berkshire Hathaway Inc. (BRK.A, BRK.B), megabank JPMorganChase & Co. (JPM) and payments processor Visa Inc. (V). You can get more tactical by playing only smaller regional banks, insurance companies or mortgage processors if you feel like it, but all of these options are a fraction of the size and trading volume that you’ll find in this deep and established financial sector ETF.

Health Care Select Sector SPDR Fund (XLV)

Sector: Health care Assets: $38.9 billion Expense ratio: 0.09% Dividend yield: 1.5%

Health care is a popular sector for investors as it’s that “Goldilocks” mix that is not too boring but also not too volatile. There is stability in pharmaceutical sales and hospital spending because people will continue to readily spend on their health regardless of the broader macroeconomic environment. There is also growth, however, as new innovations and drugs are brought to the market and open up avenues for new sales — particularly in the overpriced American health care system where a single drug brand or medical device can rack up billions in sales annually.

XLV offers a way to play the biggest stocks in this sector, with 60-plus holdings including Big Pharma giant Eli Lilly & Co. (LLY), insurance giant UnitedHealth Group Inc. (UNH) and diversified medical products icon Johnson & Johnson (JNJ).

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Industrial Select Sector SPDR Fund (XLI)

Sector: Industrials Assets: $18.3 billion Expense ratio: 0.09% Dividend yield: 1.3%

One of the less dynamic corners of the stock market, the industrial sector is nevertheless an important economic engine. Companies here are in many ways the ground floor for other industries, including firms engaged in construction services, manufacturing of machine parts and freight logistics. XLI includes almost 80 of the most prominent industrial stocks out there, including heavy machinery giant Caterpillar Inc. (CAT), conglomerate General Electric Co. (GE) and iconic railroad operator Union Pacific Corp. (UNP), to name a few. Collectively, these stocks represent the behind-the-scenes industrial sector that helps provide the foundation for many other kinds of economic activity across the nation.

Vanguard Information Technology ETF (VGT)

Sector: Information technology Assets: $62.5 billion Expense ratio: 0.1% Dividend yield: 0.6%

Speaking of foundational sectors, information technology is critical to the day-to-day operations of almost every business and household in the U.S. It also represents the most heavily weighted sector within the S&P 500, representing almost 30% of this closely-watched index. If you want to get even more involved with tech than that, however, VGT offers a focused play on this sector with more than 300 components. Admittedly, trillion-dollar leaders like Microsoft Corp. (MSFT), Apple Inc. (AAPL) and Nvidia Corp. (NVDA) dominate the portfolio with more than 40% of all assets between them. Still, VGT is a liquid and very simple way to play this high-growth sector if you’re looking to have a serious footprint in tech.

Vanguard Real Estate ETF (VNQ)

Sector: Real estate Assets: $32.5 billion Expense ratio: 0.13% Dividend yield: 4%

Believe it or not, real estate was not considered its own sector — at least not under the formal classification system most investors use — until 2016. That’s when the current GICS structure was revised to move real estate investment trusts (REITs) out of financials and into their own dedicated area. That makes sense, because even though REITs often borrow heavily to finance their property portfolios, they are fundamentally operating differently from banks. Consider the top holdings of VNQ: warehouse operator Prologis Inc. (PLD), telecom specialist American Tower Corp. (AMT), data center leader Equinix Inc. (EQIX) and senior housing company Welltower Inc. (WELL). These are all very different kinds of real estate holdings, but collectively they give investors exposure to all the different kids of properties out there. And best of all, you get exposure to this income-producing real estate without the complexities that come with buying a storefront or a second home to rent out on your own.

Utilities Select Sector SPDR Fund (XLU)

Sector: Utilities Assets: $13.1 billion Expense ratio: 0.09% Dividend yield: 3%

The utility sector is among the most defensive areas on Wall Street. That’s because the companies are often geographic monopolies that are heavily regulated and face high barriers to competition. There are only about 30 total companies in the Utilities Select Sector SPDR Fund, but that’s because there just isn’t the same kind of innovation and disruption that you’ll find in the tech sector, where new companies pop up left and right, vying for new business.

Top holdings at present including NextEra Energy Inc. (NEE), Southern Co. (SO) and Duke Energy Corp. (DUK). If you’re interested in steady income from entrenched electricity providers, then XLU is the most popular way to do that via one exchange-traded fund. While tech and utilities traditionally behave quite differently from one another, utilities have been on a compelling bull market run in 2024, as investors place big bets on utilities as another set of winners in the artificial intelligence revolution, which may drive up demand for electricity.

Materials Select Sector SPDR Fund (XLB)

Sector: Materials Assets: $5.6 billion Expense ratio: 0.09% Dividend yield: 1.8%

When it comes to businesses that truly drive the global economy, companies in the materials sector are worth highlighting because they provide the building blocks for so many other things. Mining metals, refining chemicals and supplying other raw materials isn’t a particularly sexy business — but it’s a necessary one. For investors who want to play this core sector, XLB is the largest materials fund out there, with $5.6 billion in assets and nearly 30 components, including specialty chemicals company Linde PLC (LIN) and mining giant Freeport-McMoRan Inc. (FCX), among others.

Materials stocks are tied to broader economic activity and can move up and down based on big-picture demand trends, so keep this cyclical nature in mind if you’re looking to invest in this sector.

Vanguard Communication Services ETF (VOX)

Sector: Communication services Assets: $3.9 billion Expense ratio: 0.1% Dividend yield: 0.9%

In 2018, index providers took a hard look at the traditional telecom sector that used to be mainly populated by carriers like AT&T Inc. (T) and Verizon Communications Inc. (VZ), and began including 21st century communications firms in Silicon Valley that are just as integral to the way we connect in a digital age. Today, that means Google parent Alphabet Inc. (GOOG, GOOGL) and Facebook parent Meta Platforms Inc. (META) are part of the mix — as are entertainment conglomerates like Walt Disney Co. (DIS).

You can still find traditional telecom-focused funds, but if you want a full look at the newly formulated communications services sector then VOX is your best bet at present. Keep in mind that because of their size, the digital duo of Alphabet and Meta represents more than a third of all assets in the fund. That may be a feature and not a bug if you’re looking for a modern approach to communications, however.

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11 Top Sector ETFs to Buy originally appeared on usnews.com

Update 05/24/24: This story was previously published at an earlier date and has been updated with new information.

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