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Guide to Financial ETFs

Stocks in this article: JPM XLF IYF KRE IAT KBE

NEW YORK (TheStreet) -- As earnings season has gotten under way, investors have enjoyed strong reports from a collection of companies hailing from across the market spectrum. One industry that has enjoyed some particularly encouraging strength has been the financials.

In the years following the financial crisis, Wall Street kings and regional banks have faced a relentless wave of negative coverage and pressure. This tide may be receding however, and in the weeks ahead, ETF investors may want to consider taking aim the sector.

JPMorgan (JPM), Wells Fargo (WFC), Goldman Sachs (GS), and super-regional US Bancorp (USB), are among the companies that have stepped up to the plate in recent days with analyst-beating earnings showings.

Citigroup (C), on the other hand, failed to live up to expectations. Taken at face value this news was disappointing but, as some commentators have noted, many of the company's statistics showed strength. The market shared this optimism; Citi managed to outperform fellow Wall Street titans like JPM, WFC and Bank of America (BAC) during Tuesday trading.

The parade is not over yet, either. Throughout the remaining days of the week, companies including PNC Financial (PNC), Bank of New York Mellon (BK), Morgan Stanley (MS) and Bank of America will disclose their performance numbers and provide insight into what lays on the road ahead.

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We have seen some encouraging signs of strength from the financial sector as conditions have improved and economic activity has picked up. Though headwinds facing U.S.-based banks may be letting up a bit, investors should keep in mind the fact that the sky is not entirely clear. Therefore, when setting aside a chunk of a portfolio for financial sector ETFs, investors must be on top of their homework.

A Close Look at the Sector ETFs

When the goal is tackling the largest and most recognizable names from this sector, I find that the iShares Dow Jones U.S. Financial Sector Index Fund (IYF) is the most reliable bet. Though not as massive as the iconic Financial Select Sector SPDR (XLF), IYF offers a considerably less top-heavy take on the Wall Street giants. Companies like JPMorgan, Bank of America and Berkshire Hathaway (BRK.A) top both.

In XLF, however, the 10 largest positions account for over half of the fund's assets. IYF sets aside less than 40% of its portfolio to these names. IYF casts a considerably wider net over the financials, too; while XLF tracks the performance of 83 different companies, over 250 names comprise IYF's portfolio.

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