Using Sector ETF’s To Build Your Stock Portfolio

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July 5, 2009 12:41pm ETF BASIC NEWS NASDAQ:PTRP


“The industrial sector currently has a 10% weight in the S&P 500. Usually it makes sense to underweight the sector when the cycle gets long in tooth and then overweight it after a big decline. You can decide for yourself whether overweighting or underweighting is the better position right now.

However when you think it is time to underweight the sector you probably also would want to reduce the volatility of the holdings you are using to make up the sector. The process of transitioning to overweight from underweight would probably coincide with increasing the volatility of your exposure,” reports.

“Consider the follow four ETFs that fall under the industrial sector (either entirely or mostly). For space sake I’ll just use the symbols, you can look them up if you care and BTW I don’t own any of these personally or for clients which speaks to the choice available,” reports.

XLI–megacap domestic exposure relatively low volatility
TAN–solar themed fund that is a wild ride in both directions
FLM–engineering companies that will design and build the world’s infrastructure
PTRP–anything involved with greener transportation; volatility is between XLI and TAN

“In hindsight it would have been better to have been underweight the sector, owning only XLI and then on March 9 sold out of XLI and gone to an overweight position using some combo of the specialized funds all of which have performed better than XLI off of that low. I would note that all four funds outperformed SPY off of the March low which should not be a shock based on the above comments about when to overweight the sector,” reports.

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