How To Find The Best Sector ETFs

Finding the best ETFs is an increasingly difficult task in a world with so many to choose from.

You Cannot Trust ETF Labels

There are at least 27 different Information Technology ETFs and at least 186 ETFs across all sectors. Do investors need that many choices? How different can the ETFs be?

Those 27 Information Technology ETFs are very different. With anywhere from 24 to 415 holdings, many of these Information Technology ETFs have drastically different portfolios, creating drastically different investment implications.

The same is true for the ETFs in any other sector as each offers a very different mix of good and bad stocks. Some sectors have lots of good stocks and offer quality funds. The opposite is true for some sectors, while others lie in between these extremes with a fair mix of good and bad stocks. For example, the Health Care sector, per my 3Q Sector Rankings Report ranks sixth out of 10 sectors when it comes to providing investors with quality ETFs. Consumer Staples ranks first. Utilities ranks last. Details on the Best & Worst ETFs in each sector are here

The bottom line is: ETF labels do not tell you the kind of stocks you are getting in any given ETF.

Paralysis By Analysis

I firmly believe ETFs for a given sector should not all be that different. I think the large number of Information Technology (or any other) sector of ETFs hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many ETFs. Analyzing ETFs, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, that can be as many as 415 stocks, and sometimes even more, for one ETF.

Any investor worth his salt recognizes that analyzing the holdings of an ETF is critical to finding the best ETF.

Figure 1: Best Sector ETFs

Screen Shot 2014-08-08 at 3.03.34 PM
Sources:   New Constructs, LLC and company filings

1 2 3
View single page >> |

Disclosure: NewConstructs staff receive no compensation to write about any specific stock, sector, or theme.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.