The SpaceX IPO may have thrust single-stock investing firmly into the spotlight, but advisors and investors should not forget the benefits of sector investing, says asset management giant State Street.
Elon Musk’s SpaceX is set to go public on the Nasdaq Friday in a mega-IPO that will reportedly value the company at $1.75 trillion. Trading under the ticker symbol SPCX, SpaceX's blockbuster IPO could be the largest ever. Earlier this week Bloomberg reported that the IPO is more than four times oversubscribed.
While SpaceX's offering has generated massive single-stock buzz, Matthew Bartolini, managing director and global head of research strategists at State Street Investment Management, told InvestmentNews that sector investing offers the potential for above-market returns without the single-stock risk and intensive company research required for individual stock selection.
“We're definitely continuing to see interest in using sector products, sector ETFs, to implement different investment theses, ideas, and strategies,” he said. “We've always talked about how picking a single stock for a thematic, you run the risk of getting the theme call right, but the stock call wrong."
State Street views sector investing as a powerful portfolio construction tool that lets investors capture thematic trends without shouldering much stock-specific risk.
With regard to broader investing themes, Bartolini explained that AI has been driving markets and earnings. “It's that CapEx build out and the productivity miracle that is associated with it," he said. "And that's why you're seeing a significant amount of interest into the technology sector from a fund flow perspective.”
Massive spending on AI infrastructure has certainly fueled economic and earnings growth, with the AI spending boom pushing the S&P 500 to break a number of records this year.
Flows have been very tech centric so far this year, according to Bartolini, who says that State Street has also seen decent inflows toward energy and materials. “We've seen investors gravitate towards those segments of the market that maybe perhaps can offer some inflation resilience in the face of rising inflationary pressures and rising commodity prices,” he said.
The asset management giant offers its State Street Select Sector franchise, which has 11 sectors that cover the Global Industry Classification Standard (GICS) framework. Another 11 in the franchise are based on a premium derivative income strategy. Overall, the franchise encompasses assets of around $370 billion.
U.S. households are also putting more and more of their wealth into equities, something that State Street sees as driving a need for greater diversification in their portfolios.
At the end of last year, a record 33% of U.S. household wealth was in stocks, Axios reported recently, citing Federal Reserve data. This surpassed the previous peak of around 30% during the 2021 meme-stock frenzy, according to Axios.
A lot of investors are "very loaded up" to put a high percentage of their household wealth into equities, said Bartolini. "That doesn't really give a perception of diversification," he added. “We think having a diversified portfolio is the way to ameliorate any of those concerns around concentration.”
The ETF industry is booming – U.S. ETFs accumulated total inflows of $1.48 trillion in 2025, surpassing the prior year’s record of $1.1 trillion, according to data from TD Securities. U.S.ETF launches also hit a record last year, with 1,110 new ETFs coming to market, up from 739 in 2024.
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