What is a 'Services Sector ETF'

The Services Sector ETF is an exchange-traded fund (ETF) that invests primarily in the consumer services or financial services sector of the economy.

BREAKING DOWN 'Services Sector ETF'

The services sector ETF profits or declines based on the results of an underlying group of companies that provide financing and services to consumers. Due to the wide variety of companies that fit this bill, this can refer to anything from Internet Service Providers (ISP’s) which would be designated consumer services, to financial institutions which provide financial services.

Consumer spending provides the bulk of growth in most economies. The expected returns from a services sector ETF would be directly tied to the health of the economy. In a down market, where there isn’t much consumer spending, these funds would not be as profitable. When the economy is in a state of growth, or what is also known as a bull market, these types of funds could be expected to yield a much higher rate of return.

When talking about the types of services in this sector, they are not limited by location and can also refer to credit card companies and experience-based companies, like hotels and theme parks.

Examples of Service Sector Companies

For an example of a consumer service company, consider Verizon. Their services range from cellular phones to cable television. While purchasing a cell phone through Verizon may be a tangible product, for the most part their products are service based and there is no physical product consumed.  

For an example of a financial service company, consider TD Bank. While the bank has brick and mortar locations that a customer can visit, the  customer consumes the financial service the bank provides. A customer can deposit money into a TD Bank account, receive secured and unsecured loans and open credit cards. The company also provides some financial advising. None of these services is a physical product the customer can hold onto.

Consumers are more likely to take advantage of the full range of products that companies offer when the economy is doing well. When it is not, and  people find themselves looking to cut costs to either make up for lost wages or increase savings, they will make financial sacrifices. Consumers may decide to do away with cable television or keep a more limited cellular package. They may also find themselves less likely to take advantage of personal loans or mortgages during these times.

  1. Financial Sector

    The financial sector is a category comprising companies that ...
  2. Sector Fund

    A sector fund is a fund that invests solely in businesses that ...
  3. Sector ETF

    A sector exchange traded fund (ETF) invests in the stocks and ...
  4. IPO ETF

    An IPO ETF is an exchange-traded ETF that invests in companies ...
  5. ETF of ETFs

    An ETF of ETFs is an exchange-traded fund (ETF) that tracks other ...
  6. Exchange-Traded Fund (ETF)

    An exchange-traded fund (ETF) is a security that tracks an index, ...
Related Articles
  1. Personal Finance

    How the financial services sector differs from banks

    Learn about the difference between the banking industry and the financial services sector and how to distinguish financial goods from financial services.
  2. Investing

    Spread Out Risk With Sector-Based ETFs

    These ETFs take the sector rotation strategy from institutional investors and puts it in your hands.
  3. Investing

    Peering Into the New Communications Services Sector

    The new communications services sector is almost ready to go, meaning big changes for some popular ETFs.
  4. Investing

    How to Day Trade Sector ETFs Every Day

    Sector ETFs provide a liquid asset that day traders can trade each and every day. Here's how to find which sector ETFs to day trade and what to watch for.
  5. Investing

    3 Consumer ETFs To Consider

    We look at staples, discretionary and emerging consumer ETFs in the U.S. and abroad.
  6. Investing

    4 Trends in the ETF Market to Date in 2016 (SPY)

    Learn about four emerging ETF trends in 2016, including what they signal about broader trends in investing and the financial services industry.
  7. Investing

    3 Trends That Could Affect ETF Investors in 2017

    If ETFs feature heavily in your investment portfolio, there are three specific trends to watch for in 2017.
  8. Tech

    How To Pick The Best ETF

    Of the hundreds of exchange-traded funds on the market, some are bound to fail. Learn how to pick the best of the bunch.
  9. Investing

    Exchange-Traded Funds: Diversified and Affordable

    Exchange traded funds offer many benefits when compared to stocks and index mutual funds.
  10. Investing

    How are ETFs Taxed? What You Must Know

    Understanding how taxes on ETFs and their efficiency is an important part of the appeal offered to investors as a portfolio-enhancing tool. Learn more.
  1. What common ETFs track the banking sector?

    Learn about common bank ETFs, and find out which ones focus on the international financial sector, big banks, regional banks ... Read Answer >>
  2. What is the financial services sector?

    The financial services sector consists of a diverse group of companies that goes beyond banks and credit unions. Read Answer >>
  3. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
Trading Center