What Is a Sector ETF?

A sector exchange-traded fund (ETF) is a pooled investment instrument that invests solely in the stocks and securities of a certain industry or sector, which is usually indicated in the fund’s name. A sector ETF may, for example, follow a representative basket of energy equities or a basket of technology firms.
Investors have flocked to sector ETFs, which may be used for hedging and speculating. Because of their great liquidity, even during intraday trade, substantial tracking errors from the underlying index are unusual. The majority of sector ETFs invest in companies situated in the United States, while some invest abroad to track the sector’s performance throughout the world. Assets are passively managed in the context of an underperforming market.
Indexes from data providers like S&P and Dow Jones are used by some ETFs. Leveraged sector ETFs, which seek to achieve twice the return of the underlying index on both advancing and decreasing trading days, are also available.

A Sector exchange-traded fund (ETF) invests in a given industry or sector’s stocks and shares, usually listed in the fund title. A sector ETF, for example, can follow a benchmark index for energy stocks or stocks of technology.

Sector ETFs have become popular with investors and can be used to hedge and speculate. Their high liquidity level means that there are rarely any significant monitoring errors, even during intraday trading, from the underlying index.