Top Performing ETFs In Each Sector

Can anything compete with the venerable Select Sector SPDRs family?

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy
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%.

Top Technology Sector ETF: XLK

The largest sector in the market, there’s a wide spread between the best- and worst-performing technology ETF. The reliable Technology Select SPDR (XLK | A-94) took the No. 1 spot in both the one- and five-year periods, with returns of 6.5% and 87.2%, respectively.

Naysayers will point out that XLK combines the S&P 500 technology and telecommunication sectors. The result is exposure that may not be as “pure” as some technology sector investors would like.

Considering more tech-focused ETFs, the second-place Vanguard Information Technology ETF (VGT | A-94) is a good choice, though it’s only up 2.1% in the past year and 82.1% in the past five years.

Top Health Care Sector ETFs: PSCH & XLV

It’s been tough sledding for the health care sector during the past year. Not a single sector ETF focused on health care was in the green in the period, but the PowerShares S&P SmallCap Health Care ETF (PSCH | A-53) was the best of the bunch, with a 4.5% loss.

For taking on a more volatile, small-cap portfolio, PSCH only did a tad bit better than the Health Care Select SPDR (XLV | A-93), which lost 5.1% in the past year.

Longer term, XLV was the best performer among the health care ETFs, gaining 125.5% compared with 123% for the Vanguard Health Care ETF (VHT | A-95) and 115.7% for PSCH over the past five years.

Top Financials Sector ETF: PSCF

Financials is an area where small-cap has handily outperformed large-cap. The PowerShares S&P SmallCap Financials ETF (PSCF | B-59) lost 1% compared with the Financial Select SPDR (XLF | A-93), which lost 5.7% in the past year.

In fact, XLF was the second-worst-performing fund among financial sector ETFs.

Meanwhile, over the past five years, PSCF also outperformed, gaining 64.6% compared with 59.2% for the second-place First Trust Financials AlphaDex (FXO | B-78) and 49.3% for XLF.

Top Energy Sector ETF: XLE

Far and away the worst-performing sector in recent years, it was a good idea to be conservative when it came to investing in energy sector ETFs. The Energy Select SDPR (XLE | A-91) fell “only” 17.6% in the past year and lost 6% in the past five years.

The large-cap tilt of XLE was a safety net amid ever-plunging oil prices. In contrast, the PowerShares S&P SmallCap Energy ETF (PSCE | B-19) dropped a whopping 46.8% in the past year.

Top Telecommunications Sector ETFs: FCOM & VOX

A relatively small sector dominated by a few giant companies, there are only four pure-play telecom sector ETFs on the market (there is also a leveraged fund). In fact, there’s no telecom ETF within the Select Sector SPDRs family. Rather, as previously mentioned, State Street opted to combine the sector with technology in XLK.

The dispersion of returns among the available telecom funds is quite large.

At the top of the heap is the Fidelity MSCI Telecommunication Services ETF (FCOM | A-74), which rose 9.8% in the last year.

However, FCOM wasn’t around five years ago. The best telecom ETF since then is the Vanguard Telecommunication Services ETF (VOX | A-73), which gained 54.3% in the last year.

Top Industrials Sector ETFs: XLI, VIX

The Industrial Select SPDR (XLI | A-94) lost 1% during the past year, which was enough to make it the top industrials sector ETF in that period.

However, in the five-year period, XLI was barely edged out by the Vanguard Industrials ETF (VIS | A-94), which gained 65.8%, compared with 65.2% for XLI.

Top Materials Sector ETFs: FXZ & PYZ

Basic materials ETFs is an area where a few smaller ETFs were able to perform better than the behemoths. The First Trust Materials AlphaDex (FXZ | B-74) fell 1.1% in the last year, better than the 6.9% loss for the Materials Select SPDR (XLB | A-81).

Meanwhile, the PowerShares DWA Basic Materials Momentum ETF (PYZ | B-76) rallied 43.6% over the past five years, beating the 36.6% gain for FXZ and the 28.8% return for XLB in that period.

FXZ selects its holdings using a proprietary strategy focused on growth and value metrics, while PYZ follows a Dorsey Wright relative strength index that selects and weights stocks based on price momentum.

Contact Sumit Roy at [email protected].

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.