Sector ETF
A sector ETF is an that holds a basket of companies from a single or economic , such as energy, healthcare, technology, or financials, rather than spreading holdings across the broader market. It lets an investor take a targeted position on the fortunes of one specific part of the economy without having to research and buy individual company within that .
Sector ETFs typically track an index built from the companies classified under a given , weighted by market capitalization similar to how a broad market index is constructed, just narrowed down to a single slice of the economy. Because a sector ETF concentrates exposure in companies that tend to be affected by similar economic forces, such as oil prices for an energy fund or interest rates for a financial fund, it carries more concentrated risk and typically more than a broad, diversified covering the whole market.
Investors use sector ETFs for a few different purposes, including expressing a specific view on an expected to do well, gaining exposure to a part of the economy underrepresented in a broad market index, or tactically rotating money between as the shifts. Because performance across can vary widely in any given year, concentrating too much of a in one or two sector ETFs reduces the benefit that a broader is otherwise built to provide.