Sector ETFs Take ETF Strategies to a More Active Level Including Core/Satellite and Sector Rotation Strategies

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With a sector ETF, investors can take ETF strategies to a more active level.

Sector ETFs buy the sector, rather than the individual stocks, and gain an appropriately weighted interest in all the securities within that particular index.

Australian Index Investments (Aii) is the first to offer sector ETFs in Australia and has six sector ETFs covering the financial, mining, industrial, resources and energy sectors.

ETF investment strategies to suit every type of investor

“Strategy-based ETFs, such as our Sector ETFs, give investors and their advisers more flexibility to work on more opportunistic/active strategies for creating wealth. At Aii, we are seeing increased adviser demand for a broader use of ETF strategies,” said Annmaree Varelas, CEO, Australian Index Investments.

Sector ETFs can be used as a passive buy & hold when taking a medium to long term view on a particular sector with a view to outperforming the broader market.

Alternatively, advisers could look to implement a core/satellite portfolio (with sector ETFs as the satellite investments) with the aim to generate additional alpha within your existing portfolio.

Sector ETFs can also work well as a passive product that is actively managed within a portfolio by implementing a sector rotation strategy.  This allows an investor to have several strategies in play at once:

•    Buy a sector on its upswing, thus capturing its potential for capital growth upside
•    Sell a sector on the start of a downswing to take profits and reinvest those profits in another sector that is on an upswing
•    Alternatively, you could keep a portion of the investment in the sector that is tracking down to maintain some defensive exposure

Costs

With a sector ETF, the only costs are initial brokerage and an MER of 0.43% p.a. with a tax statement provided at the end of the financial year.

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