ETFs: Select Sector SPDRs - dummies

By Russell Wild

The Select Sector SPDRs are on a par with the Vanguard industry sector ETFs. Like the Vanguard funds, they represent large U.S. industry groupings. They follow reasonable indexes, and they will cost you a tad less than the Vanguard ETFs — 0.20 versus 0.24 percent a year in management fees.

Select Sector SPDR offerings include the following:

U.S. Sector Fund Name Ticker
Biotech Select Sector SPDR XBI
Consumer Discretionary Select Sector SPDR XLY
Consumer Staples Select Sector SPDR XLP
Energy Select Sector SPDR XLE
Financial Select Sector SPDR XLF
Health Care Select Sector SPDR XLV
Industrial Select Sector SPDR XLI
Materials Select Sector SPDR XLB
Technology Select Sector SPDR XLK
Utilities Select Sector SPDR XLU

In addition to this lineup, State Street Global Advisors offers a basic lineup of sector SPDRs. The Select Sector SPDR lineup offers a few advantages over the others.

A big difference between the Select Sector SPDR and the plain old industry sector SPDR lineups is price, but if you assume that the “Select” names will cost you more, surprise! Whereas the Select Sector SPDRs charge 0.20 percent in management fees, the non-Select Sector SPDRs charge 0.35 percent for the domestic options and 0.50 percent for the international.

Another difference is the exposure. Select Sector SPDRs track large sectors of the economy, such as healthcare and energy. The plain old SPDRs, which happen to be darlings among day traders, track more narrow segments of the market.

Instead of energy, you’re looking at Oil & Gas Exploration & Production or Oil & Gas Equipment & Services, for example. Instead of healthcare, you’re looking at just healthcare equipment. Because of the larger segments of the market, and the lower prices, you’re better off with the Select Sector SPDRs over the SPDRs for any kind of domestic stock exposure.

Because the S&P indexes upon which the Select Sector SPDRs are built tend to represent mostly large cap companies, anyone building a Select Sector SPDR portfolio should tap into small caps through some other means.

The SPDRs website is full of fabulous tools. Check out especially the Correlation Tracker, SPDR Map of the Market, and the Sector Tracker. (You don’t have to be a SPDRs investor to use the tools.)