Top Performing ETFs In Each Sector

April 13, 2016

Sector investing with exchange-traded funds has been around for a while. In fact, some of the earliest ETFs were sector-focused, including the Select Sector SPDRs family, which was launched in 1998 by State Street Global Advisors.

Since then, countless other sector ETFs have come to market, including those that broke the market down further into subsectors and other niches. Yet the Select Sector SPDRs family reigns supreme, with close to $100 billion in assets in its nine original members and two new offerings.

By offering low-cost, liquid exposure to the 10 sectors laid out by MSCI and S&P’s Global Industry Classification Standard, it’s hard to beat State Street’s sector lineup.

That said, are the first-to-market Select Sector funds the best-performing ETFs when it comes to sector exposure?

How We Broke It Down

To find out, we measured the one- and five-year returns for the various sector ETFs available (data runs through April 12, 2016). For this analysis, we examined broad U.S. equity sector ETFs over the last one- and five-year periods. We excluded ETFs that focus on subsectors such as biotechnology, software or MLPs.

The results were interesting. The Select Sector SPDR ETFs often performed the best, bolstering their reputation as the best funds for sector investing.

However, that wasn’t always the case. Every now and then, a newer ETF managed to edge out the competing SPDR fund with better performance.

Here are the top-performing ETFs for each sector:

Top Consumer Discretionary Sector ETF: XLY

When it comes to consumer discretionary ETFs, the Consumer Discretionary Select SPDR (XLY | A-92) easily topped the competition. Its 3.2% return during the past year was well above the second-place fund, the Vanguard Consumer Discretionary ETF (VCR | A-95).

Like all ETFs from the Select Sector SPDRs family, XLY pulls its holdings from the S&P 500, giving it a large-cap tilt. This methodology helped it outperform over the past five years as well, with a return of 115% compared with 114.4% for the iShares U.S. Consumer Services ETF (IYC | A-95) and 107.2% for VCR.

Top Consumer Staples Sector ETF: RHS

For this conservative sector, the Guggenheim S&P Equal Weight Consumer Staples ETF (RHS | A-99) led all sector ETFs over the past year, with a 12.9% return, compared with a 10.1% return for the Consumer Staples Select SPDR (XLP | A-92).

RHS and XLP have the same names in their respective portfolios, but RHS equal-weights them, giving it a smaller-cap tilt than the market-cap-weighted XLP.

From a five-year perspective, RHS still beat out all other consumer staples ETFs, with a 121.8% return, compared with 112.7% for the nearest competitor, the First Trust Consumer Staples AlphaDex (FXG | B-73).

Top Utilities Sector ETFs: PSCU & XLU

For this safe-haven sector, the PowerShares S&P SmallCap Utilities ETF (PSCU | B-34) beat out the next-best competitor, the Utilities Select SPDR (XLU | A-87). In the past year, PSCU returned 15.4%, compared with 13.4% for XLU.

Just as XLU pulls its holdings from the S&P 500, PSCU pulls its holdings from the S&P SmallCap 600 Index, obviously giving it a much-smaller-cap tilt.

However, from the five-year perspective, XLU takes the top spot, with a gain of 87.5%, besting PSCU’s 83.8%.

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