Sector ETFs Hitting Highs

By Matthew McCall | March 16, 2012 AAA

The S&P 500 is trading at the best level in four years and the tech-heavy Nasdaq is hitting a new decade high. Stocks are soaring and there are certain sectors that have been able to outpace their peers. (For related reading, see An Inside Look At ETF Construction.)

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In the world of exchange-traded funds (ETFs), there are sector ETFs that invest in a specific sector through a basket of stocks. The offerings have expanded over the last few years and investors can get exposure to most sectors they can think of.

Some of the top sector ETFs during the recent rally may surprise investors because the rhetoric remains cautious at best when it comes to the global economy. With that being said, this is the time to invest in stocks and this is why a large number of investors do not succeed in investing.

The SPDR Retail ETF (ARCA:XRT) is a basket of 97 retail stocks that is trading at its best level ever. The ETF is highly diverse with the largest holding, Ascena Retail Group (Nasdaq:ASNA), making up 1.4% of the allocation. Apparel makes up 32%, followed by specialty retail at 16%, automotive retail at 13%, and food retail at 7%.The dividend yield is 0.8% and the expense ratio is 0.35%. XRT is one of the most diverse retail ETFs with nearly 100 stocks and exposure to a wide range of retail sectors.

Vanguard Consumer Staples ETF (ARCA:VDC) is also hitting a new all-time high as investors throw money at the defensive stocks in the staples sector. The top holdings include Proctor & Gamble (NYSE:PG) and Coca-Cola (NYSE:KO), two bellwethers of the consumer staples sector. Top sectors include household products, food and drinks, and tobacco. The ETF has an expense ratio of 0.19% and pays a 2.64% dividend.

Health Care
The SPDR Health Care ETF (ARCA:XLV) is trading at the best level since 2007 and is not far from breaking above the all-time high. The ETF is a diverse group of stocks that are from the pharmaceutical (50%), providers (19%), equipment and supplies (16%), and biotechnology (11%). There are a total of 54 stocks, but the top three make up one-third of the entire allocation: Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE) and Merck (NYSE:MRK). The dividend yield is 1.84% and the expense ratio is 0.18%.

The SPDR Technology ETF (ARCA:XLK) is breaking out to its best level in a decade, right along with the Nasdaq. The ETF of 81 stocks is heavily weighted to the largest company in the U.S., Apple (Nasdaq:AAPL). The maker of the iPad accounts for 18% of the entire portfolio. Other top stocks include Microsoft (Nasdaq:MSFT) and IBM (NYSE:IBM). With technology stocks back on the radar, XLK is one of the better options for investors that want exposure to the entire sector through the large-cap names. The expense ratio is 0.18% and the dividend yield is 1.29%.

The Bottom Line
The four ETFs mentioned above are hitting new highs. I suggest that you avoid buying at highs and look for ETFs that are trending higher. However, there is always a pullback and an opportunity to buy after a stock hits a new high. (For more, see How To Pick The Best ETF.)

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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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