After enduring overwhelming recessionary shocks during the sub
prime crisis of 2008, the financial sector of the U.S economy has
recovered quite well. Even though the sector has posted strong
numbers for the past two earnings seasons, the current tepid global
economic environment poses a serious threat to the topline revenue
and profitability of the financial sector.
Still, the financial sector has been a top performing sector so
far this year, both in terms of earnings as well as stock market
performance. However, risks still remain thanks to ongoing European
worries and some uncertainty over the Fed's action plan going into
Long Term Treasury ETFs: Ultimate QE3 Play?
Also, due to the generic slowdown, asset (loan) growth seems to
be a drag on the banking industry. Amidst all this, the markets are
filled with a risk aversion climate which has caused them to shift
focus to safer investment avenues, such as Treasury Bonds.
Nevertheless, it is prudent to note that the financial sector is
highly correlated with the broader economic trends, and any slight
improvement in the economy could mean good news for the sector,
suggesting that investors look to top ranked ETFs in this segment
for continued outperformance heading into the final quarter of the
4 International ETFs Yielding more than 5%
About Zacks ETF Rank
A look to top ranked financial ETFs can be done by using the
Zacks ETF Rank. This technique provides a recommendation for the
ETF in the context of our outlook for the underlying industry,
sector, style box, or asset class. Our proprietary methodology also
takes into account the risk preferences of investors as
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of five ranks within each
risk bucket. Thus, Zacks Rank reflects the expected return of an
ETF relative to other ETFs with similar level of risk.
Using this strategy, we have found two ETFs which are Ranked 2
or 'Buy' with this model:
PowerShares KBW Bank ETF (
Launched in November of 2011, PowerShares KBW Bank ETF (KBWB)
seeks to track the pre expense price and yield performance of the
KBW Bank Index. The index is maintained and weighted by Keefe,
Bruyette & Woods, Inc.
The benchmark is modified capitalization weighted adjusted for
free float and measures the performance of U.S. listed banks and
It is a passively managed exchange traded fund (ETF) designed to
deliver the return of the banking industry in the Financial Sector
of the U.S equity markets. KBWB provides an aggressive exposure in
the banking industry of the broader U.S. financial sector.
Since its inception, the ETF has amassed $211.39 million in
assets, making it a reasonably popular choice for investors (read
Are Foreign Financial ETFs Back on Track?
This ETF is appropriate for investors looking for concentrated
exposure in the U.S. financial sector. KBWB is a cost-effective
choice for investors as it only charges 35 basis points per annum
in fees and expenses compared to a category average of 0.58%.
The ETF focuses on large cap mainstream banks as well as
regional banks and money centers. The fund currently holds a fairly
small portfolio of 24 securities in all and allocates 60.71% of the
total assets in its top 10 holdings.
Bank of America Corp (7.83%), U.S Bancorp (7.82%), J.P Morgan
Chase & Co (7.60%), Citigroup Inc (7.12%) and Regional
Financial Corp (5.06%) are some of its top holdings.
After a brief correction in its prices in the month of June
2012, KBWB is trading at attractive valuations with a PE below 12
and price/book below 0.9. KBWB has posted impressive returns of
22.33% since its inception as of 31
RevenueShares Financials Sector ETF (
RWW seeks to outperform the financial sector of the S&P 500
Index before fees and expenses. It does this by investing in
financial stocks that are within the S&P 500 benchmark, but
weighting them based on revenues instead of market
The ETF was launched in November of 2008 and has an asset base
of around $10 million. It charges investors 0.49% as an expense
ratio, compared to a category average of 0.58%.
RWW also pays out a paltry yield of 0.92%, largely thanks to a
focus on low margin financial firms that aren't exactly yield
kings. The ETF being a function of the large cap financial stocks
was negatively impacted during July last year; however, it has
recovered well since the beginning of 2012 (see more in the
RWW has returned 13.60% for the one year period as on 31
August 2012. The ETF holds 82 securities in all with 61% of its
total assets in the top 10 holdings.
Berkshire Hathaway Inc, (10.18%), J.P.Morgan Chase & Co
(8.43%), Bank of America Corp (8%) and Citigroup Inc, (7.68%) are
some of its top holdings.
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PWRSH-KBW BP (KBWB): ETF Research Reports
REVENU-FINL SEC (RWW): ETF Research Reports
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