We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Sector ETF?

Gerelyn Terzo
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

An exchange traded fund (ETF) is a portfolio of securities that trades on a major stock exchange similar to the way that individual stocks are bought and sold. An ETF is a basket of stocks, bonds or commodities that are valued based on the net asset value of all of the securities that comprise the fund throughout the trading day. All ETFs track the performance of another index and are designed to perform similarly to another market barometer. A sector ETF has as its underlying tracking instrument an index that is focused on one particular industry sector, such as utilities, energy or consumer cyclicals.

There are several reasons for investors both large and small to invest in a sector ETF, and cost is one of them. For instance, if there is a belief that a particular sector or category of stocks is experiencing an upward climb — that is, the values of stocks in that group are expected to rise — investors will want to benefit from those profits. One way to do this without having to hand-pick the stocks that are expected to be winners is to invest in a broader investment vehicle such as a sector ETF. Rather than investing in individual stocks within a particular sector, which can generate multiple fees from a stock broker who charges investors fees based on the number of trades that they make in the financial markets, investing in one sector ETF can eliminate several layers of fees. Also, the amount of upfront capital for investing will be less to invest in a sector ETF than it might be to purchase multiple shares of individual companies that are expected to rise in value.

There are some reasons to be cautious when one is investing in a sector ETF. For instance, this investment vehicle might trade with more volatility – market swings both upward and downward – than a traditional ETF, because the latter tend to be comprised of securities across multiple industry sectors. An ETF devoted to one given industry group has a more limited universe of securities to balance things out if trading in some of those securities goes poorly. Also, the ETF might begin to deviate from its underlying index that it is designed to imitate, which can introduce surprises to investors. This is known as tracking error, and it can be a common occurrence in both sector and traditional ETFs.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Gerelyn Terzo
By Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in Mass Communication/Media Studies, she crafts compelling content for multiple publications, showcasing her deep understanding of various industries and her ability to effectively communicate complex topics to target audiences.
Discussion Comments
Gerelyn Terzo
Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.