By Tony Dong, MSc, CETF on March 23, 2026 Estimated reading time: 6 minutes

Pitfalls to avoid when investing in sector ETFs

By Tony Dong, MSc, CETF on March 23, 2026 Estimated reading time: 6 minutes

Look under the hood before buying some popular Canadian sector ETFs. There may be alternatives that better represent the sector.

Despite a large and growing body of evidence showing that most investors are best served by low-cost, broadly diversified index funds, some still prefer to take a more hands-on approach with their portfolios. That can range from picking individual stocks to making tactical bets on certain countries, such as maintaining a home bias toward Canadian equities or overweighting U.S. markets.

Sitting somewhere in between is sector investing. While there is no strict definition, it can be thought of as deliberately over- or underweighting specific parts of the market. Instead of owning the entire market, you are making targeted bets on areas like financials, energy, or technology based on your outlook.

This is top-of-mind right now due to the sector rotation we have experienced over the past six months. According to Finviz data as of March 19, the U.S. energy sector is up 32.18% year to date, while some of the mega-cap-heavy areas tied to the Magnificent Seven have lagged. Communication services is down 4.43%, technology is down 9.21%, and consumer cyclical is down 9.71%. 

Part of this comes down to macro forces. Rising geopolitical tensions, including the U.S.–Israel–Iran conflict, have sharply pushed energy prices higher, benefiting oil and gas producers. At the same time, some of the enthusiasm around artificial intelligence has cooled, with investors reassessing valuations and near-term earnings expectations for large-cap tech.

The challenge is that, while sector investing itself as a strategy has evolved, the Canadian sector ETF landscape has not kept pace in terms of fees.

In the U.S., investors have access to a wide range of low-cost options, most notably the Select Sector SPDR lineup from State Street, with management expense ratios (MERs) around 0.08%. These U.S. equity sector ETFs are also........

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