A sector ETF tracks an index made up only of companies from a particular sector (e.g. semiconductors, energy, healthcare), instead of diversifying across the whole economy.
The advantage is the ability to increase exposure to a sector you particularly believe in, on top of the allocation already present in a diversified global ETF.
The risk is correspondingly higher: if the sector goes through a downturn, the entire ETF suffers, without the protection that cross-sector diversification provides in a global ETF.
Suitable if you...
- You already have a diversified base (e.g. a global ETF) and want to add targeted exposure
- You have a specific, informed view on a sector or long-term trend
- You accept higher volatility in exchange for potentially higher (or lower) returns, depending on how the sector performs
Consider carefully if you...
- It's your only investment, with no diversified base
- You're simply chasing a recent trend without a long-term view
- You're not prepared for the value to fall much more than a global ETF in the event of a sector downturn
Most followed Sector ETFs
See all →Frequently asked questions
How much weight should a sector ETF have in a portfolio?
Many investors treat it as a smaller satellite allocation (broadly 5-15% of the total) on top of a wider diversified base — but the choice depends on personal risk tolerance.
Is a sector ETF riskier than a global one?
Yes, generally: by concentrating the investment in a single sector, it loses the protection of cross-sector diversification that a global ETF offers, so volatility tends to be higher.
How do I choose the right sector?
There's no universal answer — it depends on your own long-term view of a specific trend. It's worth being wary of anyone promising guaranteed returns by backing a currently 'hot' sector.