Sector ETF rotation in 2026 has been unusually wide. Through June 30, 2026, the Technology Select Sector SPDR Fund (XLK) returned 32.68% year to date at net asset value, the Energy Select Sector SPDR Fund (XLE) 20.52%, the Utilities Select Sector SPDR Fund (XLU) 7.62%, the Health Care Select Sector SPDR Fund (XLV) 3.41%, and the Financial Select Sector SPDR Fund (XLF) lost 1.22% [1][2][3][4][5]. A gap of almost 34 percentage points between the best and worst of the five sector ETFs in one half year is the kind of dispersion that makes sector selection matter as much as market exposure. Since midyear the leadership has begun to shift, with utilities falling and industrials rallying, according to DataPorium sector data through August 7, 2026 [6].
Which sector ETFs led and lagged in the first half of 2026
All five funds charge the same 0.08% gross expense ratio and were launched on December 16, 1998, so the return differences come entirely from the sectors themselves [1][2][3][4][5]. Technology led on both horizons: XLK's one year return to June 30, 2026 was 51.24% [1]. Energy was second with a 29.25% one year return, as XLE benefited from firm oil prices and the sector's low starting valuation [2]. Health care's 19.78% one year return came almost entirely from the second half of 2025, since the fund was up only 3.41% in 2026 through June [4]. Utilities returned 14.09% over one year and 7.62% year to date [3]. Financials were the laggard on both measures, with a 3.97% one year return and a 1.22% loss for the year to June [5].
| Sector ETF | YTD to June 30, 2026 (NAV) | 1 year to June 30, 2026 (NAV) | Expense ratio |
|---|---|---|---|
| Technology (XLK) | 32.68% | 51.24% | 0.08% [1] |
| Energy (XLE) | 20.52% | 29.25% | 0.08% [2] |
| Utilities (XLU) | 7.62% | 14.09% | 0.08% [3] |
| Health Care (XLV) | 3.41% | 19.78% | 0.08% [4] |
| Financials (XLF) | -1.22% | 3.97% | 0.08% [5] |
Valuations behind the sector ETF rotation
DataPorium's sector data for Nasdaq listed companies shows how much of the 2026 move was earnings and how much was multiple. The average technology price to earnings ratio rose from 51.47 on December 31, 2025 to 53.88 on June 30, 2026, then fell back to 47.68 by August 7, so the sector's 32.68% first half gain came with a rising multiple that has since compressed [1][6]. Energy stayed the cheapest group throughout: 17.88 times at year end, 16.51 at midyear and 16.63 on August 7 [6]. Financials derated from 26.41 to 18.90 by June 30 and 20.80 on August 7, which fits the fund's flat first half [5][6].
What changed after midyear
The most striking shifts came in defensives and cyclicals. Utilities traded at 28.85 times earnings at year end and 27.84 at midyear, then 23.94 on August 7, 2026, as XLU fell from a 2026 closing high of $47.15 on April 9 to $43.61 on August 7, a 7.5% decline [3][6]. Health care's multiple halved from 46.44 to 23.11 over the first half and stood at 22.26 on August 7, a derating that explains why XLV lagged even as the broad market rose [4][6]. Industrials, not among the five funds in the table, produced the single largest daily sector move of the period, gaining 6.19% on August 7 alone, while technology slipped 0.51% that day [6]. Readers can follow these figures on DataPorium's stock market page.
How investors use sector ETFs, and where rotation fails
Sector ETFs are the simplest tool for tilting a portfolio toward or away from parts of the economy without picking stocks, and at 0.08% they cost little more than a broad index fund [1]. Rotation strategies typically shift weight toward sectors with improving earnings momentum or cheaper valuations. The 2026 record shows both the appeal and the difficulty:
- Momentum worked in technology, where the best one year performer (51.24%) was also the best first half performer (32.68%) [1].
- Value worked in energy, the cheapest sector at about 16 to 18 times earnings, which returned 20.52% in the first half [2][6].
- Defensive positioning did not pay: utilities and health care both lagged the market, and utilities fell 7.5% from April 9 to August 7 while their multiple compressed [3][6].
- Financials disappointed despite cheap multiples, losing 1.22% in the first half even as the sector's price to earnings ratio fell from 26.41 to 18.90 [5][6].
The fair counterpoint is that sector rotation adds turnover and timing risk. An investor who rotated out of technology after its 2025 gains missed a 32.68% first half, and one who bought utilities for safety in April absorbed a 7.5% loss. Concentration is another risk: each sector fund holds a few dozen stocks, so a few large companies dominate it. Investors may consider using sector ETFs as modest tilts around a broad core rather than as a replacement for it.
Technology and energy led the first half of 2026 by wide margins, and the multiples behind that leadership have started to compress, which is what sector rotation looks like in real time.
Key takeaways
- First half 2026 returns at NAV: XLK 32.68%, XLE 20.52%, XLU 7.62%, XLV 3.41%, XLF -1.22% [1][2][3][4][5].
- Technology's average P/E rose to 53.88 at midyear and eased to 47.68 by August 7, 2026; energy stayed near 16 to 18 times [6].
- Utilities fell 7.5% from April 9 to August 7, 2026, and their P/E dropped to 23.94 from 28.85 at year end [3][6].
- All five Select Sector SPDR funds charge 0.08%, so selection, not cost, drives results [1][2][3][4][5].
- Industrials rose 6.19% on August 7 alone, a sign that leadership is broadening beyond technology [6].
Frequently asked questions
Which sector ETF performed best in 2026?
Among the large Select Sector SPDR funds, the Technology Select Sector SPDR Fund (XLK) led with a 32.68% return for the first half of 2026 and 51.24% over the year to June 30, 2026 [1].
Which sector ETF performed worst in 2026?
The Financial Select Sector SPDR Fund (XLF) lost 1.22% in the first half of 2026 and returned 3.97% over the year to June 30, 2026, the weakest of the five major sector funds [5].
Are utilities ETFs a safe haven in 2026?
Not so far this year. XLU fell from $47.15 on April 9 to $43.61 on August 7, 2026, a 7.5% decline, even though it returned 7.62% in the first half [3][6].
What do sector SPDR ETFs cost?
XLK, XLE, XLF, XLU and XLV each carry a 0.08% gross expense ratio [1][2][3][4][5].
Sources & References
- [1] Technology Select Sector SPDR Fund (XLK), State Street fund page
- [2] Energy Select Sector SPDR Fund (XLE), State Street fund page
- [3] Utilities Select Sector SPDR Fund (XLU), State Street fund page
- [4] Health Care Select Sector SPDR Fund (XLV), State Street fund page
- [5] Financial Select Sector SPDR Fund (XLF), State Street fund page
- [6] DataPorium stock market data (sector performance, sector P/E and XLU prices)
