How to find the best sector ETFs for 2Q24

Several stacks with coins and the term ETF and a chart with stock prices.

to receive

With an ever-growing list of similar-sounding ETFs to choose from, finding the best one is an increasingly difficult task. How can investors change the game to tip the scales in their favor?

Don’t trust ETF labels

There are at least 95 different technology ETFs and at least 329 ETFs across eleven sectors. Do investors need more than 30 options per sector on average? How different can ETFs be?

These 95 technology ETFs are very different from each other. Ranging from 23 to 438 positions, many of these technology ETFs have drastically different portfolios with different risk profiles and performance prospects.

The same goes for ETFs in any other sector, as each offers a completely different mix of good and bad stocks. Energy ranks No. 1 in terms of stock picks. Utility companies are in last place.

Avoiding analysis paralysis

I think the large number of sector ETFs hurts investors more than it helps them. Manually performing deep analysis on each ETF is simply an unrealistic option, leaving investors vulnerable to under-analysis and missing out on profitable opportunities. Analyzing ETFs with due diligence is much more difficult than analyzing stocks because it means analyzing all the stocks within each ETF. As stated above, a single ETF can hold as many as 438 or more stocks.

Figure 1 shows the top-rated ETFs in each sector.

Figure 1: Top ETF in each sector

The best sector ETFs 2Q24

New Constructions Limited Liability Company

* Top ETFs do not include ETFs with TNA below $100 million due to insufficient liquidity

Among the ETFs shown in Figure 1 is the Invesco KBW Bank ETF (
Invesco KBW Bank ETF
) ranks first overall, iShares US Home Construction ETF (
iShares American housing ETF
) ranks second and VanEck Steel ETF (SLX) ranks third. First Trust Utilities AlphaDEX Fund (
First Trust Utilities AlphaDEX Fund
) takes last place.

How to avoid “inner danger”

Why do you need to know ETF holdings before buying?

You need to make sure you don’t buy an ETF that could blow up. Buying an ETF without analyzing its holdings is like buying a stock without analyzing its operations and finances. No matter how cheap it is, if it holds bad stocks, the ETF’s performance will be bad.

FUND PERFORMANCE – FEES = FUND PERFORMANCE

If only investors could find funds rated according to their resources

Invesco KBW Bank ETF (KBWB) is not only the highest-rated financial ETF, but also the highest-rated overall sector ETF out of the 329 sector ETFs my firm operates.

The worst-performing ETF in Figure 1 is First Trust Utilities AlphaDEX Fund (FXU), which receives a Very Unattractive rating. You’d think ETF providers could do better for this sector.

Disclosure: David Trainer, Kyle Guske II and Hakan Salt do not receive any compensation for writing about any particular stock, sector or topic.