One impressive measure of initial response to these ETFs is the amount of trading volume they have accumulated in just two short weeks. Several of the ETFs I have screened are trading between 25,000 and 100,000 shares per day. That likely shows the strength of the low-cost offering combined with the built in demand on their broad platform.
Fidelity made a real statement by undercutting the expense ratio of every other sector ETF in the industry. Typically these fee wars have been dominated by the likes of Vanguard and Charles Schwab (SCHW) trying to outdo each other by offering the lowest cost products. For comparison purposes, the Vanguard Energy ETF (VDE) charges an expense ratio of 0.14%. Clearly there is room for more competition and many industry experts believe that there is an opportunity for expense ratios to fall even further.
How do you integrate these ETFs into your portfolio?
The benefit of investing in sector ETFs is that it gives your portfolio concentrated exposure in an area of the market that you feel will outperform over time. As a portfolio manager, I like to use these types of funds to strategically position my asset allocation to add alpha over a core holding such as the Vanguard Total Stock Market ETF (VTI).
Growth investors that are looking for exposure to areas that are continuing to lead the market higher may want to consider an allocation to either the Fidelity MSCI Consumer Discretionary Index ETF (FDIS) or Fidelity MSCI Information Technology Index ETF (FTEC). Both of these high octane segments are benefiting from the strength of positive earnings momentum and strong cyclical demand. If the market continues to churn to new highs, these sectors will likely outperform in the fourth quarter.
More conservative investors might be attracted to the pace of the Fidelity MSCI Consumer Staples Index ETF (FSTA) which focuses on companies that are engaged in manufacturing or delivering essential everyday products. This sector benefits from inelastic consumer demand and historically tends to be a more defensive area of the market if we hit a rough patch.