Sector Investing

Diversified exposure that is liquid, transparent and low cost
Sector Investing Using ETFs

Sector ETFs provide you a basket of stocks that are focused on targeted sector or industry providing you a diversified exposure that is liquid, transparent and low cost.

Why Use ETFs for Sector Investing
  • Diversified Exposure: The basket of stocks that are focused on a targeted sector or industry provides diversification which helps mitigate the singe stock risk and lower overall volatility.
  • High liquidity: While the ETF is a basket of stocks, they trade just like an individual stocks, so that you can quickly move in or move out of the position to factor in your market views.
  • Save time and effort: Save time and effort of single stock research and focus on the sector as a whole.
  • Low Cost: With one trade, you can get access to 10-100 different companies within one sector
  • Rebalancing: Sector ETFs stay pure to the desired investment theme and rebalance for the investors to the index target weights
How Sector ETFs Can Be Used for Portfolio Construction
  • Strategic Allocation: Sector ETFs can be used to complement one’s portfolio to efficiently overweight a part of the market. The Canadian market for example is very concentrated in several different sectors: Financials, Energy, Industrials and Materials. For investors using a broad market Canadian ETF they may be underexposed to other areas of the market. For example, the Health Care and Info Tech sectors in Canada are extremely small relative to the global economy. Canadian investors may consider U.S. and global sectors for a more diversified portfolio. Using ETFs as a strategic allocation helps investors fill in gaps in their portfolios.
  • Tactical Allocation: A popular way that sector ETFs are used by investors is to employ a sector rotation strategy based on the economic cycle. Fluctuations within an economic cycle consists of contraction (recession) and expansion (growth). Within a market cycle defensive sectors (Utilities, Consumer Staples) tend to perform well during recession and economic troughs and cyclical sectors (Financials, Industrials, and Information Tech) tend to do well when the economy is expanding. Therefore, using sector ETFs to rotate into relevant sectors helps some investors play the economic cycle.
What is an “Equal Weight” sector ETF?

An ETF that invests an equal amount in every company in the ETF’s portfolio, regardless of market capitalization. This results better diversification and less single stock risk in a portfolio which can result from a market capitalization approach.

Spring into ETFs “Sectors”
Rotating for Success with BMO ETFs

This communication is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

The portfolio holdings are subject to change without notice and only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. Exchange traded funds are not guaranteed, their values change frequently, and past performance may not be repeated.

For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.

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