Sector ETFs As Single Stock Replacements

    Published: 06-16-2009
    Views: 4,890
    Ron DeLegge, Founder of ETF Guide, explains how sector ETFs have performed compared to single stocks.

    Ron DeLegge: Regardless of whether you believe the stock market is overvalued or undervalued, one thing we can all agree upon is that stocks have been stellar performers. I am Ron DeLegge with EFTguide.

    The S&P 500 has risen five consecutive years and gained around 225% since hitting market lows in March of 2009, but hidden beneath the sizzling returns has been a whole lot of subpar performing individual stocks.

    Now, to grasp the magnitude of the underperformance here's what I did. I did a random analysis on 50 blue-chip stocks covering the nine S&P 500 industry sectors, and you know what I found? I found that companies like Exelon Corp.

    , ticker symbol EXC, General Motors, ticker symbol GM, and Hewlett-Packard, ticker symbol HPQ, were the worst performers in terms of five year performance returns.

    Over the past five years each of these stocks underperformed their peer sector ETF by a wholly unacceptable 122%, all the way to 162%. Ouch! What does it mean? My analysis shows that even blue-chip stocks in hot performing sectors often underperform their peer sector ETF. So what's the key takeaway? If you own individual stocks or work at a publicly traded company, start comparing the performance of your stock versus its peer sector ETF, and if you do that, you may discover, just as I did, that investing in the sector ETF is a much better choice.

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