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The ETF Book: All You Need to Know About Exchange-Traded Funds, Updated Edition by Richard A. Ferri

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CHAPTER 12

Industry Sector ETFs

Industry sector exchange-traded funds (ETFs) are a dynamic and growing market. The number of ETFs that track industries and the depth of the offerings continue to increase. More global industry ETFs are also making their way into investors’ portfolios as the world becomes flatter.

There are many uses for industry ETFs. One basic use is to fill an industry gap in a portfolio that is not covered by other investments. Another use is to gain greater exposure to an industry sector that you expect to outperform the broad market. A third use is to use the funds as a hedge against a concentrated stock position. That is accomplished by shorting an industry ETF and thereby reducing industry exposure in a portfolio.

Whatever the use an investor has for industry sector ETFs, there are plenty of funds to choose from. More than one-quarter of all equity ETFs are industry sector funds, and the assets in those funds total about 10 percent of the total assets in all ETFs.

One of the most popular industries for ETF investing is real estate. Nearly $10 billion is invested in a handful of U.S. real estate investment trust (REIT) ETFs. State Street Global Advisors (SSGA) launched the first international real estate fund in 2006. The Standard & Poor’s Depositary Receipt (SPDR) DJ Wilshire International Real Estate ETF (symbol: RWX) attracted more than $1 billion in assets during its first 12 months. A special section on real estate ETFs is provided at the end of this ...

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