It is the second-largest sector weight in the S&P 500 and
perhaps the one that is still the most controversial. Given those
points, it is easy to understand why many investors, when pressed,
could name at least ETF that tracks the financial services
to be named would probably be the Financial Services Select Sector
), the Vanguard Financials ETF (NYSE:
) or another one of the legitimately popular funds. In other words,
it might come as a surprise to some that it is entirely possible
for an ETF tracking financial services names to lead a low fanfare
It is possible, but as is the case with so many other sector
funds that do not command the attention their larger counterparts
do, the following financial services ETFs are worthy of
consideration for investors' portfolios.
First Trust Financials AlphaDEX Fund (NYSE:
) Home to $215.6 million in assets under management and average
daily volume north of 247,000 shares, the First Trust Financials
AlphaDEX Fund is by no means obscure. It is merely smaller and less
heavily than larger funds such as XLF and VFH.
Importantly, FXO does over a credible alternative to more
heralded bank ETFs because of the AlphaDEX methodology,
which goes beyond traditional cap-weighting
found in so many sector and broad market ETFs.
That means FXO's constituents are screened on "growth factors
including three, six and 12-month price appreciation, sales to
price and one year sales growth, and, separately, on value factors
including book value to price, cash flow to price and return on
according to First Trust
. Importantly, FXO is home to 164 stocks, twice as many as XLF, and
the former allocates no more than 1.33 percent to any of its
individual holdings. Those factors give FXO a quasi-equal weight
approach and helps investors dodge excessive weightings to the
usual suspects of the banking sector such as Bank of America (NYSE:
) and Wells Fargo (NYSE:
). FXO has returned over 21 percent in the past year.
PowerShares S&P SmallCap Financials Portfolio (NASDAQ:
) The PowerShares S&P SmallCap Financials Portfolio tracks over
100 stocks parsed from the S&P SmallCap 600 Index, but it is
worth noting that this is not strictly a bank stock ETF. In fact,
just one of the ETF's top-10 holdings and two of the top-20 are
true bank stocks.
Rather, PSCF is heavily allocated to small-cap real estate
investment trusts. The fund is also not 100 percent allocated to
small-caps as it devotes about 14 percent of its weight to mid-cap
names. As an income play for investors who are not risk-averse,
PSCF is worthy of some consideration because the fund has a 6.5
percent distribution yield.
Distribution yield is calculated by dividing the ETF's most
recent distribution, in this case almost 52 cents per share on
December 31, and dividing it by the fund's net asset value on that
according to PowerShares
. Investors will pay up for PSCF a bit as the ETF features a P/E
ratio of almost 23.
Market Vectors Bank and Brokerage ETF (NYSE:
) Average daily turnover of about 27,300 shares for RKH may seem
off-putting to volume fanatics, but two things are worth noting
here. First, the ETF is home to just 26 stocks and none of the
top-10 holdings (59.3 percent of the ETF's weight) can be
considered thinly traded. Those names include HSBC (NYSE:
), J.P. Morgan Chase (NYSE:
) and Citigroup (NYSE:
Second, RKH is up 27.3 percent in the past year, meaning this
often overlooked fund has slightly outperformed both XLF and VFH.
The key to RKH's 2013 potential upside is obvious. This fund is not
solely U.S-focused. Rather, U.S.-based banks account for just 38.2
percent of the fund's weight.
European, be they U.K.-based, Spanish, Swiss or others,
represent over 34 percent of RKH's total weight. Some of those
surged in 2012
and will have to deliver in the form of less controversy and higher
dividends this year to please investors.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
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