Whether you are a savvy individual investor , a financial planner, broker, institutional investor or pension plan sponsor, the following strategies illustrate how to use Select Sector SPDRs:
Select Sector SPDRs allow you to purchase the S&P 500 Index in pieces, giving you greater flexibility to customize the S&P 500. You can purchase the eleven Select Sector SPDRs in weighting consistent with the S&P 500 or use your own weighting to meet specific investment goals.
Example: Your investment objective is to have exposure to the broad market, such as the S&P 500 Index. However, you are speculating that the financial sector will provide strong performance during the next year, while the technology sector will suffer declines. You can purchase all eleven Select Sector SPDRs, buying a heavier concentration of the Financial Select Sector SPDR (XLF) and fewer shares of the Technology Select Sector SPDR (XLK).
An Equal Sector Strategy is a strategy that delivers exposure to the US Large Cap Equity market by investing equal proportions in each of the 11 Select Sector SPDRs
This strategy delivers moderate, yet meaningful exposure to every sector of the market. As a result, investors have the opportunity not only to participate in a sector rally wherever it may occur, but also to minimize the negative impact of a crash in any individual sector by rebalancing back to equal weight (9.09% in each sector) quarterly. In addition, the Equal Sector Strategy has the following benefits:
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Select Sector SPDRs can help investors manage more tax-efficient investment portfolios. Before entering into any tax-related strategies, consult your tax advisor.
Sell individual stock positions currently trading below purchase price, realize the loss and maintain similar sector exposure by purchasing the appropriate Select Sector SPDR.
Example: You are currently long several stocks that are held by a Select Sector SPDR, all of which are trading below their original purchase prices. You can sell your loss positions, realize the losses, and buy the Select Sector SPDR which holds those stock positions to maintain exposure to those stocks and others in that sector.
Sell an ETF, closed-end fund or mutual fund currently trading below purchase price, realize the loss and maintain similar sector exposure by purchasing the appropriate Select Sector SPDR.
Example: You are currently long a Technology Fund, which is trading below your original purchase price. You can sell your loss position, realize the loss, and buy the Technology Select Sector SPDR (XLK) to maintain similar exposure.
Select Sector SPDRs allow you to purchase the S&P 500 Index in pieces, giving you greater flexibility to customize a portfolio and better manage after-tax returns. Purchase all eleven Select Sector SPDRs in weightings consistent with the S&P 500 or use your own weightings to meet a specific investment goal.
Example: Whether your objective is income or growth, you can sell the sectors with unrealized losses at year-end and maintain exposure to those sectors by buying similar ETFs. After waiting at least 31 days, you may rebalance the portfolio by swapping back into the appropriate Select Sector SPDRs with weightings appropriate to your investment objectives.
Sell short one of the Select Sector SPDRs that corresponds to your individual stock positions and reduce the downside risk without realizing a taxable event on your long positions in those stocks.
Example: You hold sizable positions of stock A and stock B with unrealized gains. To hedge the downside risk without recognizing a taxable event, you sell short the Select Sector SPDR that includes these companies.
Options are available on Select Sector SPDRs. This feature provides investors with an additional tool to manage the risk in their portfolio.
When reviewing your portfolio, you realize that you are overexposed to certain sectors and underexposed to others. Use Select Sector SPDRs to over-weight underrepresented sectors and reduce exposure to sectors that overlap.
Example: Although you have investments in individual stocks, index funds and actively managed mutual fund, many individual stocks are also owned in large percentages by both the index funds and active mutual funds. As a result, this particular stock portfolio is heavily weighted with large cap names in the financial, technology, and health care sectors. However, as of the end of 2012, these three sectors also comprised 49% of the S&P 500 Index.
To correct the imbalance in the portfolio, you replace a portion of the technology, health care and financial stocks with investments in the Materials (XLB), Industrial (XLI) and Consumer Discretionary (XLY) Select Sector SPDRs. These sectors are under-weighted in both the mutual fund and index portfolios, and will help offset the technology, health care and financial sectors, which are still well represented in your other investments.
As a prudent investor, you must make periodic appraisals of your portfolio. As market conditions change, investment positions may need to be adjusted in order for you to remain consistent with the investment objectives.
Example: A market rally in one sector can leave you exposed to a crash in the next business cycle. We all remember the tech bubble that burst in 2000. The following table shows the percentage of the S&P 500 in the technology sector at various stages.
Sector | Date | Percentage of S&P 500 (by market cap) |
---|---|---|
Technology | 08/14/1998 | 11% |
Technology | 03/31/2000 | 39% |
Technology | 12/31/2002 | 18% |
Investors who bought the S&P 500 Index in 1998 were only counting on roughly a 11% exposure to technology. However, by March of 2000 technology stocks accounted for almost 40% of the market capitalization of the Index. By the end of 2002, the technology portion of the S&P 500 had lost more than half of its value from a high in March 2000. Select Sector SPDRs can be used as a rebalancing tool to ensure that you’re not overly exposed to any individual sector.
Select Sector SPDRs allow you to place diversified investments in certain sectors or industry groups. This minimizes the impact of company-specific risk with an investment portfolio.
Example: You feel bullish about energy and want to allocate a small portion of your portfolio in top energy stocks. To avoid the volatility associated with investing in one or two stocks, while maintaining concentrated exposure to an industry group, you buy the Energy Select Sector SPDR (XLE), which currently provides exposure to a wide range of energy stocks.
Whether it is an index, individual portfolio, hedge fund, or actively managed fund, extra cash can drag the performance of a portfolio that is designed to be fully invested. Select Sector SPDRs combine equity exposure needed to remain fully invested with the flexibility required for cash management needs.
Example: Your high-tech portfolio is designed to be fully invested. You allocate a certain percentage of the portfolio for short-term cash needs and purchase the Technology Select Sector SPDR (XLK). As cash needs dictate, you buy and sell XLK, satisfying your obligations while remaining fully invested.
Select Sector SPDRs can be utilized as a transition vehicle while replacing a portfolio manager or an asset class.
Example: You manage an account and are in the process of replacing a money manager. Faced with the options of keeping the old manager's portfolio or liquidating it for cash, Select Sector SPDRs provide an attractive alternative. By replacing the securities in the portfolio with Select Sector SPDRs, equity exposure is maintained until the manager is changed.
Consult your Tax Advisor for additional information.
Performance is historical and does not guarantee future results; current performance may be lower or higher. Investment returns/principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Most recent month-end performance is available in the Performance topic. Past performance does not guarantee future results.
Sector SPDRs are subject to risk similar to those of stocks including those regarding short selling and margin account maintenance. All ETFs are subject to risk, including possible loss of principal. Sector ETF products are also subject to sector risk and non-diversified risk, which will result in greater price fluctuations than the overall market.
The charts are standard price and volume charts. Volume on the horizontal axis with volume in green on up days (periods of time) and in red on down days (periods of time). Price movement can be found on the vertical axis.
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You are not required to provide any personal information on this site unless you choose to provide your name, mailing or e-mail address to request information. We will not transfer your personal information to any non-Select Sector SPDR entity for commercial purposes. If you provide your e-mail address, you may receive e-mail from us.
Our web server will log your Internet Protocol (IP) address or the IP address of your proxy server. It will not systematically track your domain name or your e-mail address for any purpose.
As of June 24, 2002 the Select Sector SPDR Trust instituted the following changes: The Basic Industries Select Sector SPDR Fund changed its name to the Materials Select Sector SPDR Fund. The Consumer Services Select Sector SPDR Fund changed its name to the Health Care Select Sector SPDR Fund. The Cyclical/Transportation Select Sector SPDR Fund changed its name to the Consumer Discretionary Select Sector SPDR Fund.
Select Sector SPDR shareholders are subject to risks similar to those of holders of other sector stock portfolios. One primary consideration is that the general level of stock prices may decline, and thus the value of Select Sector SPDRs may decline. A Select Sector SPDR also may be adversely affected by the performance of the specific sector or group of industries upon which it is based. You can expect that shares in a Select Sector SPDR will move up or down in value with the value of its related Select Sector Index. In addition, the overall depth and liquidity of the secondary market in these shares may fluctuate.
Although Select Sector SPDRs are designed to provide investment results that, before expenses, generally correspond to the price and yield performance of their related Select Sector Indexes, the Funds of The Select Sector SPDR Trust may not be able to exactly replicate the performance of the Select Sector Indexes because of expenses and other factors.
Over time, the stock holdings of each Select Sector SPDR may be rebalanced to reflect changes in the composition of its related index. A Select Sector SPDR would incur transaction costs and other expenses as a result of rebalancing. Furthermore, a Select Sector SPDR would realize capital gains or losses from the sale of securities in a rebalancing.
Net long-term capital gains, if any, will be distributed to shareholders as capital gains distributions at least annually.
From a tax standpoint, you should be aware that the Select Sector SPDR Trust is structured as a regulated investment company, and that dividend distributions may not be characterized entirely as ordinary income. You may wish to consult your tax advisor in this regard.
You are not required to provide any personal information on this site unless you choose to provide your name, mailing or e-mail address to request information. We will not transfer your personal information to any non-Select Sector SPDR entity for commercial purposes. If you provide your e-mail address, you may receive e-mail from us.
Our web server will log your Internet Protocol (IP) address or the IP address of your proxy server. It will not systematically track your domain name or your e-mail address for any purpose.
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The Standard & Poor's (S&P) 500 Index is an unmanaged index that tracks the performace of 500 widely held, large-capitalization U.S. stocks. Indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index.
Change reflects change from previous day closing price.
The S&P 500 ® and Select SPDRs are trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use. The stocks included in each sector Index were selected by the compilation agent. Their composition and weighting may differ from that in any similar index published by S&P.
Distributed by ALPS Portfolio Solutions Distributor, Inc.
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