Zeroing in on State Street Sector ETFs

Sector ETFs have been gaining in popularity this year and the oldest and arguably one the of the most popular has been a suite of funds from State Street Corp. 

For example, the Communication Services Select Sector SPDR Fund (XLC) is the best performer among the Boston-based asset manager’s suite of 11 SPDR-branded sector ETFs. On a year-to-date basis, the fund is up 42%, just ahead of the 38% gain for the Technology Select Sector SPDR Fund (XLK).  

But neither XLC nor XLK is the top State Street Sector ETF in the suite. That achievement belongs to the Financial Select Sector SPDR Fund (XLF), which has year-to-date inflows of $3.1 billion, compared to inflows of $2.9 billion for XLC and outflows of $2.1 billion for XLK. 

XLF’s inflows could be attributed to bargain hunting in financial stocks following the regional banking crisis earlier this year, while XLK’s outflows may reflect profit taking in technology shares following their steep runup this year.  

XLK’s outflows are second only to the $3.7 billion of outflows for the Energy Select Sector SPDR Fund (XLE).  

The energy ETF is one of the worst-performing funds in the suite this year, with a gain of 1.7%. Only the Health Care Select Sector SPDR Fund (XLV), with a loss of 0.7%, and the Utilities Select Sector SPDR Fund (XLU), with a loss of 7.6%, have performed worse this year.  

This year’s weak showing for XLE contrasts with its performance last year, when it returned 64%, making it far and away the best-performing ETF within the SPDR suite.  

State Street Sector ETFs 

Sector ETF returns can vary significantly from one year to the next, and past performance is no guarantee of future performance.  

The 11 ETFs in the SPDR sector suite reflect the 11 sectors within the Global Industry Classification Standard. They are among the oldest sector ETFs on the market, having launched in 1998. There are many other sector ETFs, with some of them adhering to the GICS, while others adhere to alternative sector classification schemes. 

Thematic ETFs, which hold stocks from multiple sectors, have also grown in popularity over the past several years.