2024’s Smartest Sector Bets: 3 ETFs to Buy This January


  • These three top sector ETFs all should do well in 2024.
  • Fidelity MSCI Consumer Discretionary Index ETF (FDIS): Lower interest rates and a soft landing will help this ETF. 
  • Invesco S&P 500 Equal Weight Utilities ETF (RSPU): Utilities will rebound in 2024.
  • Invesco S&P SmallCap Financials ETF (PSCF): A little riskier than large caps, lower interest rates will help the smaller financial stocks. 
top sector ETFs - 2024’s Smartest Sector Bets: 3 ETFs to Buy This January

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If you’re looking for ETFs to buy, an excellent place to start is the top sector ETFs. 

In 2023, eight out of 11 S&P 500 sector returns for the year were positive, with only consumer staples (-2.3%), energy (-4.8%), and utilities (-10.4%). The top three sectors for performance were technology (56.4%), communication services (54.4%), and consumer discretionary (40.3%).

As a momentum investor, you might want to focus on sector ETFs from 2023’s top three performers. You’re probably leaning to the bottom three if you’re a value investor.

State Street has 11 different sector ETFs. Technology Select Sector SPDR Fund (NYSEARCA:XLK), the most popular, has $57.1 billion in net assets. The ETF with the lowest net assets is the Materials Select Sector SPDR Fund (NYSEARCA:XLB), which has $5.54 billion. 

For me, I’d probably go with a little of both. That means one winning sector, a losing sector, and one in between. With that in mind, my winning sector is consumer discretionary. My loser is utilities and my in-between is financials because lower interest rates in 2024 should be good for the sector. 

To make matters interesting, I won’t go with the Select Sector ETFs but rather other sector ETFs. 

Fidelity MSCI Consumer Discretionary Index ETF (FDIS)

Amazon logo

Fidelity MSCI Consumer Discretionary Index ETF (NYSEARCA:FDIS) has net assets of $1.39 billion. It tracks the performance of the MSCI USA IMI Consumer Discretionary 25/50 Index, a collection of U.S.-listed stocks participating in the consumer discretionary sector. 

The 25/50 means that no stock can exceed a 25% weighting, and the holdings with a weighting over 5% should not exceed 50%. 

The ETF holds approximately 287 stocks with an average market capitalization of $125.02 billion, less than the $139.35 billion average for the index. The average price-to-sales ratio is 1.54, while the average price-to-earnings ratio is 22.17. 

The top 10 holdings account for 59% of its net assets. The top three holdings by weight are Amazon (NASDAQ:AMZN) at 21.51%, Tesla (NASDAQ:TSLA) at 13.45% and Home Depot (NYSE:HD) at 6.85%.     

Over the past five years, FDIS has averaged an annualized total return of 14.83%, just 12 basis points less than the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). 

It charges a very reasonable management expense ratio of 0.084%. That’s $0.84 per $1,000 invested.  

Invesco S&P 500 Equal Weight Utilities ETF (RSPU)

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I’m a big fan of equal-weight ETFs and indexes. The main reason is that it allows smaller companies to make it into the mix. With Amazon taking up nearly one-quarter of FDIS, there’s not much left for everyone else. 

The Invesco S&P 500 Equal Weight Utilities ETF (NYSEARCA:RSPU) is the equal-weight version of State Street’s Utilities Select Sector SPDR Fund (NYSEARCA:XLU). In 2023, RSPU had a total return of -3.45%, 372 basis points better than XLU, despite holding the same number of S&P 500 utility stocks

Launched in November 2006, RSPU attracted $275 million, considerably less than the $14.63 billion for XLU, despite delivering better performance over the past year. 

XLU’s weighted average market cap of $50.90 billion, is about 53% larger than the $33.2 billion average for RSPU. 

Here’s another difference: Electric Utilities account for 57.04% of RSPU, compared to 66.08% for XLU. Again, this relates to the equal weight vs. market weight discussion. RSPU’s top holding by weight is NRG Energy (NYSE:NRG) at 3.53% compared to NextEra Energy (NYSE:NEE) at 13.41%.   

RSPU charges 0.40% annually, 30 basis points more than XLU.   

Invesco S&P SmallCap Financials ETF (PSCF)

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Rather than go with some massive large-cap ETF, I chose a small-cap ETF for the financials sector. 

The Invesco S&P SmallCap Financials ETF (NASDAQ:PSCF) tracks the performance of the S&P SmallCap 600 Capped Financials & Real Estate Index, a subset of the S&P SmallCap 600 Index. The “capped” reference in the index name caps any stock at 22.5%. Those exceeding 4.5% at 45% of the portfolio. 

As interest rates fall, small-cap financials will see their business pick up as small-cap companies allocate more capital to growth endeavors through loans, etc. 

The top three sectors by weight for PSCF are banks (36.29%), insurance (10.17%), and financial services (7.97%). Real estate-related holdings account for 36% of the ETF’s $20.3 million net assets. 

It currently has 169 stocks. The top 10 accounts for just 14% of the portfolio. The top holding—Lincoln National (NYSE:LNC)—accounting for 1.62% of the ETF. 

It’s time for small-cap stocks of every kind to shine in 2024.      

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Article printed from InvestorPlace Media, https://investorplace.com/2024/01/2024s-smartest-sector-bets-3-etfs-to-buy-this-january/.

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