Asset managers are seeing rising demand for exchange-traded funds that target a single sector, such as U.S. communications, as investors shrug off the risk of heightened volatility that comes with less diversified strategies, according to Cerulli Associates.


Seventeen single-sector ETFs with European domiciles were launched during the first nine months of this year, bringing the total to 236, Cerulli said Monday in a research report, citing Morningstar data. For example, State Street Corp. and BlackRock created European-domiciled ETFs to track the U.S. communications sector. 


Asset managers are creating communications-focused ETFs after the S&P and MSCI indexes broadened the sector to include technology giants Facebook and Alphabet — the parent of Google — along with media companies, according to the report. Under the reclassification this year, telecom companies Verizon Communications and AT&T also fall under communications, now the biggest industry in the S&P 500 stock index.


“The business of classifying telecoms, media, and technology stocks is fraught with difficulties and providers need to explain to investors what is included in the sector and what is not,” Cerulli, a Boston-based consulting firm, said in the report. Facebook, Google, and AT&T are very different companies, the firm cautioned. 


ETFs, which are passively managed, have been popular with investors over the past several years for their low-cost and strong performance relative to active stock pickers. The communications-focused ETFs that BlackRock and State Street Global Advisors began offering this year each have a total expense ratio of 0.15 percent.  


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“The S&P 500’s near-10-year bull run, despite some recent weakness, has boosted the case for passive investing, with not many active funds able to outperform,” Cerulli said. 


Still, some investors may see single-stock selection as “going too far” if they believe certain phenomena are driving whole sectors up, according the report. That’s the case the with oil industry, where the price of crude tends to broadly help or hurt companies. 


Meanwhile, investors with a negative view of a particular industry can short single-sector ETFs as part of their portfolio strategy, Cerulli said.