The S&P 500 Index, which measures the stock performance of the largest publicly traded 500 companies in the U.S., is up over 4% so far in 2021. Its market capitalization (cap) is over $33 trillion. Investors could gain exposure to the entire S&P 500 index through buying funds like the SPDR S&P 500 Fund (NYSEARCA:SPY). They could also invest in individual industries by selecting index funds in their preferred sectors.
The 500 companies in the S&P 500 index are currently divided into 11 sectors. In 1999, S&P Global (NYSE:SPGI) and MSCI (NYSE:MSCI) assigned companies into sectors by introducing the Global Industry Classification Standard (GICS). Today’s article introduces seven index funds from seven of those 11 sectors.
With that information, our index funds to keep on your radar in the second quarter are:
- Communication Services Select Sector SPDR Fund (NYSEARCA:XLC)
- Fidelity MSCI Consumer Discretionary Index ETF (NYSEARCA:FDIS)
- Financial Select Sector SPDR Fund (NYSEARCA:XLF)
- iShares Global Materials ETF (NYSEARCA:MXI)
- Shares Residential and Multisector Real Estate ETF (NYSEARCA:REZ)
- Vanguard Consumer Staples Index Fund ETF (NYSEARCA:VDC)
- Vanguard Information Technology Index Fund ETF (NYSEARCA:VGT)
Index Funds: Communication Services Select Sector SPDR Fund (XLC)
52-Week Range: $41.59 – $76.60
Year-to-date (YTD) Price Change: Up about 8%
Dividend Yield: 0.64%
We start our discussion with the communications services sector, which includes advertising, entertainment, social media and telecommunications firms. The Communication Services Select Sector SPDR Fund is one of the top exchange-traded funds (ETFs) in the sector. It began trading in June 2018, and assets under management stand at $12.5 billion.
XLC, which tracks the returns of the Communication Services Select Sector Index, currently has 26 holdings. The top names in the fund comprise over 65% of the fund. Facebook (NASDAQ:FB), Google’s parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Verizon Communications (NYSE:VZ), Charter Communications (NASDAQ:CHTR) and AT&T (NYSE:T).
Given the increased reliance on technology during the pandemic, shares of a large number of these companies have seen record highs in the past 12 months. The fund hit an all-time high in mid-March. Trailing price-to-earnings (P/E) and price-to-book (P/B) ratios are 23.38 and 4.02. As we start a new earnings season, volatility is likely to increase. A potential decline below $70 would offer a better entry point for long-term investors.
Fidelity MSCI Consumer Discretionary Index ETF (FDIS)
52-Week Range: $35 – $77.88
Year-to-date (YTD) Price Change: Up about 5%
Dividend Yield: 0.58%
Consumer discretionary businesses usually offer non-essential products and services. Under budgetary constraints, most consumers tend to spend less on such discretionary items. Put another way, the sector is sensitive to economic cycles. In the manufacturing side of the equation, there are automotive, household durable goods, textiles and leisure equipment business. In terms of service businesses, we find leisure services, such as lodging providers, hotels, restaurants, cinemas and retailers.
The Fidelity MSCI Consumer Discretionary Index ETF gives access to the consumer discretionary sector. Over 97% of the firms are U.S.-based. FDIS began trading in October 2013; its net assets are $1.4 billion. The fund tracks the MSCI USA IMI Consumer Discretionary Index and currently has 274 holdings. The sectoral breakdown looks like this: internet & direct marketing retail (28.07%), specialty retail (19.19%), hotels, restaurants & leisure (16.10%), automobiles (12.83%), textiles, apparel & luxury Goods (7.06%), household durables (4.95%), and others.
The top 10 companies comprise around 54% of the fund. Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA), Home Depot (NYSE:HD), Nike (NYSE:NKE), McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) are the leading names. Readers should note that the weighting of AMZN and TSLA stocks is 21.15% and 10.11%, respectively. Thus a large move in either company’s share price could have a significant effect on this top-heavy fund.
Over the past 52 weeks, FDIS has returned about 100%. Trailing P/E and P/B ratios are 33.18 and 6.59, respectively. Given the increase in price in recent months, there could be profit-taking in many of the stocks in the fund. A potential decline toward $70 would improve the margin of safety.
Financial Select Sector SPDR Fund (XLF)
52-Week Range: $19.36 – $35.29
Year-to-date (YTD) Price Change: Up about 15%
Dividend Yield: 1.85%
Our next index fund comes from the financial sector, including banks, asset managers, brokers, insurers, and real estate investment trusts (REITs). The Financial Select Sector SPDR Fund invests in a diverse range of financial services firms.
XLF started trading in December 1998; net assets stand at $37.3 billion. The fund, which has 65 stocks, tracks the returns of the the Financial Select Sector Index.
Among the leadings names in the fund are Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), and Morgan Stanley (NYSE:MS). Around 55% of the fund is held in the top 10 holdings.
Over the past 52 weeks, the fund has returned 87%. Trailing P/E and P/B ratios are 15.39 and 1.51, respectively. Long-term investors who believe banks and other financial institutions will be able to navigate the dynamic factors in the current economic environment could consider investing around $30.
iShares Global Materials ETF (MXI)
52-Week Range: $47.57 – $88.13
Year-to-date (YTD) Price Change: Up about 6%
Dividend Yield: 1.18%
Investors who want to participate in the growth of businesses in the chemical, mining, construction, packaging and paper industries typically invest in the materials sector. Those firms are primarily commodity-related manufacturing businesses.
Our next fund, the iShares Global Materials ETF, gives access to global companies involved with the production of raw materials, including metals, forestry, packaging and chemicals products. About a third of the businesses are U.S.-based. Next in line are the U.K., Australia, Japan, and Canada.
MXI, which has 103 holdings, tracks the S&P Global 1200 Materials Sector index. The top 10 firms make up over 30% of total net assets which stand at $677 million. Among the leading stocks are Linde (NYSE:LIN), BHP (NYSE:BHP), Rio Tinto (NYSE:RIO), L’Air Liquide Societe Anonyme pour l’Etude et l’Exploitation des Procedes George (OTCMKTS:AIQUY), and BASF (OTCMKTS:BASFY).
The fund has returned 78% in the past year and hit a record high in recent days. Trailing P/E and P/B ratios are 24.73 and 2.31, respectively. Those investors who would like add leading global names to their portfolios could consider buying the fund around $80.
iShares Residential and Multisector Real Estate ETF (REZ)
52-Week Range: $48.50 – 76.56
Year-to-date (YTD) Price Change: Up about 9%
Dividend Yield: 3.05%
Real estate constitutes one of the most widely-followed sectors of our economy. The iShares Residential and Multisector Real Estate ETF invests in residential, health care and self-storage real estate equities stateside.
REZ, which has 42 stocks, tracks the FTSE NAREIT All Residential Capped Index. Since its inception in May 2007, net assets have grown to $492 million.
Residential REITs in the fund top the list with 50%. Next are health care REITs (31.18%) and specialized REITs (18.39%), such as student-housing REITs. Over 55% of the fund is in the top 10 names. They include: Public Storage (NYSE:PSA), Welltower (NYSE:WELL), Equity Residential (NYSE:EQR), and AvalonBay Communities (NYSE:AVB).
The fund has returned 45% in the past 12 months and saw a 52-week high in mid-March. Trailing price-to-cash flow (P/CF) and P/B ratios are 18.87 and 2.56 respectively. Readers might be interested to know that health care REITs are typically among the highest-yielding sub-sectors. If you want to avoid certain real estate sub-sectors, such as retail, commercial or office, you might find this fund more appropriate for your portfolios. A potential decline below $70 would improve the attractiveness of the fund.
Vanguard Consumer Staples Index Fund ETF (VDC)
52-Week Range: $133 – $177.34
Year-to-date (YTD) Price Change: Up about 1%
Dividend Yield: 2.63%
Consumer Staples, our next segment, are considered necessities, such as food, beverage, personal hygiene and health products. The Vanguard Consumer Staples Index Fund ETF invests in a range of U.S. consumer staples companies.
VDC, which tracks the investment performance of the MSCI US IMI Consumer Staples 25/50 index, has 96 holdings. The most important sectors (by weighting) are, household products, soft drinks, packaged foods & meats, hypermarkets & super centers, making up around 75% of the fund.
The top 10 holdings make up around 62% of total net assets of about $6 billion. VDC’s top five companies are Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), Walmart (NYSE:WMT), Pepsi (NASDAQ:PEP), and Costco Wholesale (NASDAQ:COST).
Over the past year, VDIC has returned about 37%. In March, it hit a record high. Trailing P/E and P/B ratios stand at 23.3 and 4.8. In case of profit-taking, especially during the current busy earnings season that is about to begin, the price could find initial support around the $170-level.
The Vanguard Information Technology Index Fund ETF (VGT)
52-Week Range: $200 – $382.73
Year-to-date (YTD) Price Change: Down about 1%
Dividend Yield: 0.82%
Since the beginning of the year, the S&P 500 Information Technology index is down about 1%. This important sector comprises Software and Services, Technology Hardware and Equipment, and Semiconductors and Semiconductor Equipment. These businesses have provided the tailwinds for much of the growth in broader equity markets over the past decade. Therefore, there are a number of index funds that could appeal to Investorplace.com readers.
The Vanguard Information Technology Index Fund ETF invests in information technology (IT) firms stateside. Since the fund’s inception in January 2004, net assets have reached $47.3 billion.
VGT, which includes 341 stocks, tracks the returns of the MSCI US IMI Info Technology 25/50 Index. The most important sectors are technology hardware, storage & peripherals (21.1%), systems software (20%), semiconductors (16.3%), data processing & outsourced services (14.1%), and others.
In the past year, VGT returned about 71%, hitting an all-time high in March. As a result, its trailing P/E and P/B ratios of 35.7 and 9.6 indicate an overstretched valuation. In the case of short-term profit-taking, potential investors could find better value around $340. The fund could appeal to individuals wanting to invest in a diverse range of technology stocks.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.