When you see tech stocks making the headlines and the sector starting to heat up, you may have a few favorite stocks to turn to, but I advise opening a position in a tech ETF. These ETFs can capitalize on broad sector strength before individual stocks emerge as the real winners. This allows you to profit twice–once from the ETF and again when you move into the stocks leading the rally.
Here’s one tech ETF that does a good job of representing the tech sector. The iShares DJ US Technology Sector Index Fund (NYSE:IYW) contains holdings such as Apple Inc. (NASDAQ:AAPL), International Business Machines (NYSE:IBM), Microsoft Corp. (NASDAQ:MSFT), Google Inc. (NASDAQ:GOOG), Intel Corp. (NASDAQ:INTC) and many more. When you want exposure to technology stocks but aren’t sure which ones to buy, this is a great way to profit while you do your research and wait for the winners to emerge.
Energy has been another hot trend this year, and the iShares DJ US Energy Sector Index Fund (NYSE:IYE) is a great way to capitalize on the strength of all the big players in oil and gas production as well as services and distributors. Names like Exxon Mobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX) and Conoco Phillips (NYSE:COP) are among the top holdings of IYE.
And then there’s healthcare. During the market volatility this summer, many investors shifted their investments into sectors with a reputation for safety. Health care was one of the best places for them to park their money, but because the shift didn’t have a healthcare-based catalyst, it was hard to determine which stocks would be the biggest winners. So the best course of action would have been to jump into a health care ETF or two. The one that I would recommend to just about any investor right now is the iShares DJ US Health Care Sector Index Fund (NYSE:IYH).
IYH focuses on a variety of health care industries as opposed to a single service or product. Its 127 positions include companies spanning the health care equipment and services, pharmaceuticals and biotechnology segments. The two largest holdings in this fund are Pfizer Inc. (NSYE:PFE) and Johnson & Johnson (NYSE:JNJ), both of which account for 11% of the total fund.
My favorite aspect about IYH is that it is highly diversified–a must in times like these. It offers you a nice snapshot of the overall health care sector and will allow you to enjoy growth in numerous health care branches without having to invest in more than one fund.
As you can see, these three funds give you the perfect amount of exposure to the sectors you’re interested in and alleviate the stress of trying to pick the right stocks early in a sector trend.