A number of US economic sector ETFs (exchange-traded funds) are actively traded in the US stock markets. Sector funds hold stocks that have been classified into one of the eleven major US economic sectors. Namely, consumer discretionary, consumer staples, communication, financial services, energy, health care, industrials, materials, technology, real estate, and utilities. Sector ETFs make it possible to follow changing market trends and control exposure to areas showing economic expansion or contraction. Several financial institutions manage sector ETFs which are traded on majors stock exchanges. These sector ETFs may vary in terms of holdings, share price, volume, or other metrics. In addition, to the major sector funds, there are also ETFs focused on sub-sectors of the economy.
There are a number of potential advantages to trading an ETF. Unlike mutual funds, ETFs are traded throughout the trading day and often have lower management fees. Because ETFs are a collection of stocks, investment risk within a sector is distributed limiting the exposure to any single stock. In addition, because many sector ETFs are actively traded, their liquidity may be greater than individual stocks resulting in faster trade execution, smaller bid/ask spreads, and lower trading costs.
Any trading strategy will have advantages and disadvantages. As a collection of stocks, a fund may have less dramatic price movement resulting in less volatility and also lower option premiums.