Although scandals and worries over euro zone debt continue to
hang over the financial sector, the segment has been undeniably a
great place to be in 2012. Industries in this sector have risen
either in line or well above the broad market so far this year, and
are finally storming back to their former glory levels.
Furthermore since these issues remain hanging over the market,
valuation levels are still relatively reasonable for many stocks in
the financial sector, suggesting that there could still be room to
run. This could be especially true if rates remain stable and if
default rates continue to stay at a low level, allowing many
financial institutions to clean up in the market.
Yet with that being said, there are a number of very specific
ways to play the financial sector, be it in the broad space,
insurance, broker-dealers, or any number of other niche industries.
Each of these segments has their own pros and cons and no one
industry is suitable for every investor.
Luckily for investors, there are a number of ways to play the
financial sector with ETFs. Funds exist that delve into specific
types of financials, while there are also several that attack the
space from a broad perspective (see
Beware These Three Volatile Financial ETFs
Given the vast ways to play the space and the relatively solid
performance of the sector so far in 2012, it could be worth it to
take a closer look at some of the financial sector ETFs on the
market. Below, we highlight six of the most popular ETFs in this
increasingly in-focus sector for those who are seeking to make a
targeted play on the space:
Financial Select Sector SPDR (
is by far one of the biggest, oldest and most popular name in the
financial ETF space. The fund has been in existence for over 12
years and has seen many ups and downs.
It seeks to replicate as closely as possible, the before-expense
price and yield performance of the S&P Financial Select Sector
Index. The index measures the performance of the broader financial
It provides the choice of a cost effective investment avenue for
investors looking for financial sector exposure as it charges a
paltry 18 basis points in fees and expenses. The fund holds 82
securities, allocating 50.26% of its total assets in the top 10
holdings. Heavyweights like Wells Fargo, J.P. Morgan, Berkshire
Hathaway and Citigroup are some of its top holdings.
The fund can be considered to be a mirror image of the
performance of the financial sector in the U.S economy as it tracks
some of the biggest names in this sector. XLF has proved its
sustainability and solvency, given its period of existence and an
asset base of around $7 billion.
It continues to excite investors as is evident from its average
daily volume, which stands tall at around 83 million shares. The
ETF also pays out a yield of 1.52% per annum (see
Three Financial ETFs Outperforming XLF
RevenueShares Financial Sector ETF (
Launched in November of 2008, amidst the financial crisis, RWW
seeks to outperform the financial sector of the S&P 500 Index
before fees and expenses. It does this by investing in a broad
benchmark of financials but it weights stocks by total revenue
rather than by market capitalization.
This results in a portfolio that is tilted away from high profit
margin and smaller companies and is instead focused in on behemoths
or do a great deal of revenues and may not see the biggest margins.
For example, Berkshire, JPM, and BAC take the top three spots in
the fund's composition.
Unfortunately, the product hasn't really caught on with
investors, as it has amassed just over $10 million in assets. This
results in low volume levels which could result in higher bid ask
spreads than some of the other funds on the list.
However, as the risk-appetite for investors increases on account
of favorable economic data in domestic as well as global markets
and given the consolidation of the financial sector as a whole, RWW
may gain popularity. This is assuming of course investors can
overlook the 54 basis point expense ratio and instead focus in on
the different exposure that the product gives.
SPDR S&P Mortgage Finance ETF (
seeks to resemble S&P Mortgage Finance Select Industry Index
before fees and expenses. The index is derived from the mortgage
financing, processing and marketing segment of the U.S equity
market. The components of the index have an average estimated EPS
growth of 9.1%.
However, the fund does not lay much emphasis on current income
as indicated by its dividend yield at 1.80% per annum. Although the
fund holds only 47 securities in total, just 29.05% of its total
assets are in its top 10 holdings. It thereby offers investors a
well diversified portfolio, only putting 4.1% in its top
The fund charges a paltry 35 basis points in fees and expenses
making it a low cost choice in this space, especially when compared
to its more real estate-focused peers (read
Guide to MBS ETF Investing
SPDR S&P Regional Banking ETF (
was launched in June of 2006 and seeks to track, before expenses,
price and yield performance of the S&P Regional Banks Select
Industry Index. It does this by employing an equal weighting
methodology across the entire index portfolio.
Although the fund includes stocks from the entire spectrum of
market capitalization, it has a particular bias towards small cap
stocks. More than half of its total assets are allocated in the
small cap stocks. The ETF holds 75 securities in all and allocates
18.62% of its assets in the top 10 holdings.
The product could also be an interesting pick for investors
seeking more of a local tilt in their financial exposure, or for
those looking for more pint sized security exposure. Furthermore,
fees are reasonable with the expense ratio standing at 0.35% while
total assets are pretty good at around $1.01 billion.
iShares Dow Jones US Broker-Dealers ETF (
seeks to track the performance of the Dow Jones U.S. Select
Investment Services Index before fees and expenses. The index
tracks companies in the investment services sector, a sub-sector
within the broader financial sector of the U.S economy.
IAI employs a representative sampling technique to include
stocks in its portfolio. This ETF is appropriate for investors
looking to get exposure to brokerage firms, dealers and other
facilitators directly involved in the capital markets (see more in
The fund currently holds 25 securities and does well in
allocating just 57.74% of the total assets in its top 10 holdings.
Goldman Sachs Group Inc, Morgan Stanley, CME Group, Inc., Charles
Schwab Corp and Ameriprise Financial Inc are some of its top
IAI tracks a niche segment of the broader financial sector, the
performance of which is largely dependent on the performance of the
capital markets. It charges investors 0.47% as expenses and pays
out 1.23% as yield (read
Invest Like the 1% with These Three ETFs
iShares Dow Jones US Insurance ETF (
launched in May of 2006. IAK is an insurance ETF which tracks the
Dow Jones U.S. Select Insurance Index. The index measures the
performance of the insurance sector of the U.S. equity market.
The ETF holds 64 securities and is appropriate for investors
looking for a multi cap play on the insurance industry. The ETF
charges investors 47 basis points in fees and expenses and pays out
1.63% as yields. It has total assets of about $70.94 million.
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ISHARS-DJ US BR (IAI): ETF Research Reports
ISHARS-DJ INSUR (IAK): ETF Research Reports
SPDR-KBW MTGE (KME): ETF Research Reports
SPDR-KBW REG BK (KRE): ETF Research Reports
REVENU-FINL SEC (RWW): ETF Research Reports
SPDR-FINL SELS (XLF): ETF Research Reports
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