A sector-specific ETF aims to cover an entire industry. To do this, the fund invests in securities of companies in that specific industry. Notable sectors covered by various ETFs include finance, energy , automotive, tech, chemicals, biotech and many others.
For example, the ETF "XLE" offers exposure to a basket of US large-cap energy firms, including companies in the oil, gas, consumable fuels, and energy equipment and services sectors. Holdings are weighted by market cap, subject to a capping methodology ensuring that no single security exceeds 25% at each quarterly rebalance.
Are there other ETF categories?
Yes, ETFs can also cover regions or countries. A US ETF can cover the entire US market by tracking for example, the S&P500 Index. This is an easier way to speculate on entire markets than investing into individual stocks.
What else do you need to know about ETFs?
Want to know more before deciding which is the best ETF for you? Check out these articles to deepen your knowledge:
- What is an ETF?
- What is the difference between mutual funds and ETFs?
- What is the difference between US and EU ETFs?
- What does an ETF portfolio mean?
- What is an ETF expense ratio?
- How to invest in ETFs?
- How liquid are ETFs?
- How to buy Vanguard ETFs?
- How to buy iShares ETFs?
- What is passive investment?
- Are US ETFs only available for US residents?
How can I buy ETFs?
For more info, click here to learn how to buy ETFs online.