SFY - SFY: For More ETF Costs All You Get Is More Tech Than The SPY

2023-03-27 12:00:10 ET

Summary

• SoFi Select 500 ETF is a pretty simple value-based exchange-traded fund that focuses on healthcare and technology a little more than the SPY ETF.
• The expense ratios are substantially higher though than SPY-tracking ETFs.
• Moreover, there isn't a reason to overweight tech right now.
• At any rate, the index is pretty passive and we would focus on the cost side of things and look for ETFs that run with little deadweight like the IVV, an iShares SPY-tracker.

The SoFi Select 500 ETF ( SFY ) covers a subset of the U.S. market that overlaps substantially with the S&P 500 Index (SP500) and is skewed a little more towards healthcare and technology stocks. Its expense ratios are a little higher, especially considering the rather bland composition, and being pretty close to the SPDR S&P 500 Trust ETF (SPY) in terms of composition makes it pretty uncompelling. Moreover, the tech skew isn't something that's particularly favorable in the current markets, and is probably worth avoiding for that reason as well.

SFY Breakdown

We've covered SFY before . It likes its tech exposures. While the SPY is more or less around 26% exposed to tech, SFY is 30%, and some more controversial companies rank unusually highly instead of other companies that would be in focus using a straightforward value-weighted approach of the whole market as with the SPY.

Tesla, Inc. ( TSLA ) is a 6% exposure , and, while less controversial nowadays in terms of valuation, TSLA is still a high multiple automotive stock that depends meaningfully on risk-on sentiment and idiosyncratic concerns around Elon Musk, even his personal escapades. But there are plenty of other major tech exposures that still depend on expectations, particularly of cloud revenues, maintaining growth while tech sales velocity is falling, even if the secular picture is good. It's enough that things just get red-shifted slightly for revenues to fall below expectations.

There is a decent exposure to healthcare, but around the same exposure as in the SPY, which we follow using the iShares Core S&P 500 ETF ( IVV ).

The SFY expense ratio is 0.37% instead of the 0.03% of the IVV, so it's 10x the expense rate while only contributing a more edgy portfolio selection, still skewed to major market movers in the tech space like FAANG stocks and Tesla.

Market Environment

Both a risk-off environment in general, but especially one caused by the Fed raising rates, should keep investors away from the sort of stocks that SFY focuses on. With the matter of interest rates being central to current market dynamics, something that affects gravity on multiples in the market, high multiple tech stocks should be a concerning area. Expectations remain high despite meaningful pressures from interest rates, especially now as credit becomes increasingly withdrawn from the economy, affects consumer finance, and a generally leveraged economy in general to discretionary expenditures.

But the issue is mainly that there are broad-based exchange-traded funds, or ETFs, that accomplish much of the same as SFY but at a lower cost. Index investing really comes down to the fact that fees often erode performance in more actively managed instruments to the point where the index is optimal.

There really isn't much point in SFY. You could just buy the SPY and add on a couple of tech exposures you like to achieve much of the same effect.

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