SELECT YOUR SECTORS Respond to Market Cycles with Agility and Precision
ECONOMIC CYCLES & SECTORS The economy moves in cycles. Specific sectors may outperform or underperform during different phases, driven by cyclical factors such as corporate earnings, interest rates and inflation. For a sector rotation strategy around a core US equity exposure, investors can use ETFs to increase their allocation to sectors expected to outperform because of cyclical trends, and decrease their allocation to sectors that are expected to underperform. MID-CYCLE LATE-CYCLE XLE Energy XLK Technology XLI Industrials XLB Materials SPY Core US Equity XLY Consumer Discretionary XLU Utilities RECESSION XLP Consumer Staples XLF Financials XLV Health Care EARLY RECOVERY Recession A contraction in economic activity as profits decline and consumer expectations begin to bottom out. Industrial productivity is no longer declining, but not increasing. Businesses do not increase their production levels until they believe consumers are actually ready to spend again. Monetary policy becomes very accommodative to stimulate growth. Early Recovery Economic growth (as measured by GDP) moves from negative to positive. Consumer expectations and industrial production begin to rise, while corporate profits increase as margins expand. Monetary policy remains accommodative and interest rates bottom out. Mid-Cycle Typically, this is the longest phase of the business cycle, marked by strong credit markets and continued improvement in corporate profitability as well as economic growth. Monetary policy remains accommodative, but less so than in the early phase. Consumer expectations and productivity levels remain elevated. Late-Cycle Economic growth rates stall as monetary policy becomes restrictive to cool an over-heated economy. Consumer expectations fall more sharply and productivity levels start to drop. Credit markets begin to tighten as fresh capital becomes scarce and corporate profits decline. Source: State Street Global Advisors, as of 9/30/2015. For Illustrative Purposes Only. The S&P 500 Index is the tracking index for SPY. The S&P Select Sector Indices are the tracking indices for the Select Sector SPDR Funds. All components of the S&P 500 Index are assigned to one of the S&P Select Sector Indices, which track major economic sectors as defined by the Global Industry Classification Standard (GICS ).
Select Sector SPDR ETFs Ticker Fund Name Benchmark Gross Expense Ratio (%)* Economic Cycle XLU Utilities Select Sector SPDR Fund S&P Utilities Select Sector Index 0.14 Recession XLP Consumer Staples Select Sector SPDR Fund S&P Consumer Staples Select Sector Index 0.14 XLV Health Care Select Sector SPDR Fund S&P Health Care Select Sector Index 0.14 Early Recovery XLF Financials Select Sector SPDR Fund S&P Financials Select Sector Index 0.14 XLY Consumer Discretionary Select Sector SPDR Fund S&P Consumer Discretionary Select Sector Index 0.14 XLI Industrials Select Sector SPDR Fund S&P Industrials Select Sector Index 0.14 Mid-Cycle XLK Technology Select Sector SPDR Fund S&P Technology Select Sector Index 0.14 XLE Energy Select Sector SPDR Fund S&P Energy Select Sector Index 0.14 Late-Cycle XLB Materials Select Sector SPDR Fund S&P Materials Select Sector Index 0.14 SPDR Industry ETFs (Equal Weighted) FINANCIALS Fund Name Index Gross Expense Ratio (%) Economic Cycle KBE SPDR S&P Bank ETF S&P Banks Select Industry Index 0.35 Early KRE SPDR S&P Regional Banking ETF S&P Regional Banks Select Industry Index 0.35 Early KCE SPDR S&P Capital Markets ETF S&P Capital Markets Select Industry Index 0.35 Early KIE SPDR S&P Insurance ETF S&P Insurance Select Industry Index 0.35 Mid INDUSTRIALS XAR SPDR S&P Aerospace & Defense ETF S&P Aerospace & Defense Select Industry Index 0.35 Mid-Late XTN SPDR S&P Transportation ETF S&P Transportation Select Industry Index 0.35 Mid HEALTH CARE XBI SPDR S&P Biotech ETF S&P Biotechnology Select Industry Index 0.35 Early-Mid XPH SPDR S&P Pharmaceuticals ETF S&P Pharmaceuticals Select Industry Index 0.35 Late-Rec XHE SPDR S&P Health Care Equipment ETF S&P Health Care Equipment Select Industry Index 0.35 Mid XHS SPDR S&P Health Care Services ETF S&P Health Care Services Select Industry Index 0.35 Recession ENERGY XOP SPDR S&P Oil & Gas Exploration & Production ETF S&P Oil & Gas Exploration & Production Select Industry Index 0.35 Late XES SPDR S&P Oil & Gas Equipment & Services ETF S&P Oil & Gas Equipment & Services Select Industry Index 0.35 Late MATERIALS XME SPDR S&P Metals & Mining ETF S&P Metals & Mining Select Industry Index 0.35 Mid-Late CONSUMER RELATED XRT SPDR S&P Retail ETF S&P Retail Select Industry Index 0.35 Early-Mid XHB SPDR S&P Homebuilders ETF S&P Homebuilders Select Industry Index 0.35 Early-Mid TECHNOLOGY XSD SPDR S&P Semiconductor ETF S&P Semiconductor Select Industry Index 0.35 Late XSW SPDR S&P Software & Services ETF S&P Software & Services Select Industry Index 0.35 Early MTK SPDR Morgan Stanley Technology ETF Morgan Stanley Technology Index 0.35 Early XTL SPDR S&P Telecom ETF S&P Telecom Select Industry Index 0.35 Late * The gross expense ratio is the fund s total annual operating expenses ratio. It is gross of any fee waivers or expense reimbursements. It can be found in the fund s most recent prospectus.
Definitions Industrial Productivity Measures the output of industrial establishments in the following industries: mining and quarrying, manufacturing and public utilities (electricity, gas and water supply). Production is based on the volume of the output. Monetary Policy The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Accomodative Regarding monetary policy, when a central bank (such as the US Federal Reserve) attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP). Gross Domestic Product (GDP) The monetary value of all the finished goods and services produced within a country s borders in a specific time period Profit Margins Expressed as a percentage and, in effect, measures how much out of every dollar of sales a company actually keeps in earnings. Economic Cycle Periods of growth or contraction in the economy, typically called periods of expansion or recession. Different sectors and industries typically perform differently based on particular phases of the economy cycle. Equal Weighted Index A benchmark that weights its constituent stocks equally, and rebalances on a periodic basis (such as quarterly) to maintain the equal weighting. Select Sector Index The companies included in each Select Sector Index are selected on the basis of general industry classification from a universe of companies defined by the Standard & Poor s 500 Composite Stock Index ( S&P 500 ). S&P Health Care Select Sector Index The Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology. S&P Consumer Discretionary Select Index The Consumer Discretionary Select Sector Index includes companies from the following industries: retail (specialty, multi-line, internet and catalog); media; hotels, restaurants & leisure; household durables; textiles, apparel & luxury goods; automobiles, auto components and distributors; leisure equipment & products; and diversified consumer services. S&P Consumer Staples Select Index The Consumer Staples Select Sector Index includes companies from the following industries: food & staples retailing; household products; food products; beverages; tobacco; and personal products. S&P Energy Select Index The Energy Select Sector Index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services. S&P Financial Select Sector Index The Financial Select Sector Index includes companies from the following industries: diversified financial services; insurance; commercial banks; capital markets; real estate investment trusts ( REITs ); thrift & mortgage finance; consumer finance; and real estate management & development. S&P Utilities Select Index The Utilities Select Sector Index includes companies from the following industries: electric utilities; multi-utilities; independent power producers & energy traders; and gas utilities. S&P Technology Select Sector Index The Technology Select Sector Index includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics. S&P Industrial Select Sector Index The Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. S&P Materials Select Sector Index The Materials Select Sector Index includes companies from the following industries: chemicals; metals & mining; paper & forest products; containers & packaging; and construction materials. S&P Banks Select Industry Index The S&P Banks Select Industry Index is a modified equalweighted index that seeks to reflect the performance of publicly traded companies that do business as banks or thrifts.
Definitions S&P Regional Banks Select Industry Index The S&P Regional Banks Select Industry Index is a modified equal-weighted index that seeks to reflect the performance of publicly traded companies that do business as regional banks or thrifts. S&P Capital Markets Select Industry Index The S&P Capital Markets Select Industry Index is a modified equal-weighted index that seeks to reflect the performance of U.S. publicly traded companies that do business as brokerdealers, asset managers, trust and custody banks or exchanges. S&P Insurance Select Industry Index The S&P Insurance Select Industry Index is a modified equal-weighted index. It is currently comprised of leading companies active in the U.S. insurance industry that are listed on the NYSE, or another U.S. national securities exchange, or NASDAQ /NMS. S&P Aerospace & Defense Select Industry Index S&P Aerospace & Defense Select Industry Index is a modified equal-weighted index that represents the aerospace & defense sub-industry portion of the S&P Total Stock Market Index TM. S&P Transportation Select Industry Index The Index represents the transportation sector of the S&P Total Market Index ( S&P TMI ). S&P Biotech Select Industry Index The S&P Biotechnology Select IndustryTM Index is a modified equal-weighted index that represents the biotechnology subindustry portion of the S&P Total Markets Index TM. S&P Pharmaceuticals Select Industry Index The S&P Pharmaceuticals Select Industry Index is a modified equal-weighted index that represents the pharmaceuticals subindustry portion of the S&P Total Markets Index TM. S&P Health Care Equipment Select Industry Index The S&P Health Care Equipment Select Industry Index Is a modified equal-weighted index that represents the health care equipment and supplies sector of the S&P Total Market Index ( S&P TMI ). S&P Health Care Services Select Industry Index S&P Health Care Services Select Industry Index Is a modified equal-weighted index that represents the health care subindustry portion of the S&P Total Stock Market Index TM. S&P Oil & Gas Exploration & Production Select Industry Index The S&P Oil & Gas Exploration & Production Select Industry Index Is a modified equal-weighted index that represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index TM. S&P Oil & Gas Equipment & Services Select Industry Index The S&P Oil & Gas Equipment & Services Select Industry Index Is a modified equal-weighted index that represents the oil and gas equipment and services sub-industry portion of the S&P Total Markets Index TM. S&P Metals & Mining Select Industry Index The S&P Metals & Mining Select Industry(TM) Index Is a modified equal-weighted index that represents the metals and mining sub-industry portion of the S&P Total Market Index. S&P Retail Select Industry Index The S&P Retail Select Industry Index Is a modified equalweighted index that represents the retail sub-industry portion of the S&P TMI. S&P Homebuilders Select Industry Index The S&P Homebuilders Select IndustryTM Index Is a modified equal-weighted index that represents the homebuilding subindustry portion of the S&P Total Markets Index TM. S&P Semiconductor Select Industry Index The S&P Semiconductor Select IndustryTM Index Is a modified equal-weighted index that represents the Semiconductor sub-industry portion of the S&P Total Markets Index TM. S&P Software & Services Select Industry Index S&P Software & Services Select Industry Index Is a modified equal-weighted index that represents the software subindustry portion of the S&P Total Stock Market Index TM. Morgan Stanley Technology Index The Morgan Stanley Technology Index is an equal weighted index composed purely of electronics-based technology companies. S&P Telecom Select Industry Index The S&P Telecom Select Industry Index Is a modified equalweighted index that represents the telecommunications sector of the S&P Total Market Index ( S&P TMI ).
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State Street Global Advisors One Lincoln Street, Boston, MA 02111-2900. T: +1 617 664 7727. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. Risks associated with equity investing include stock values which may fluctuate in response to the activities of individual companies and general market and economic conditions. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions will reduce returns. Index-based ETFs are passively managed and seek to track an index of securities. Expenses may cause the ETF s returns to deviate from the returns of the index. Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index. Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA s express written consent. Select Sector SPDR Funds bear a higher level of risk than more broadly diversified funds. All ETFs are subject to risk, including the possible loss of principal. Sector ETFs products are also subject to sector risk and non-diversification risk, which generally results in greater price fluctuations than the overall market. Because of their narrow focus, sector investing tends to be more volatile than investments that diversify across many sectors and companies. 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