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Top 10 U.S. Financial Sector ETFs


Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication, we can help select those ETFs that matter and may not be repetitive. The result is a more manageable list of issues from which to choose from.

Currently there are nearly 40 ETFs oriented to the financial sector. The following analysis features our top selections of ETFs. We believe these constitute the best index-based offerings individuals and financial advisers may utilize.

Weâ¿¿re not ranking these ETFs favoring one over another so donâ¿¿t let the listing order mislead you. Although we may use some of these in ETF Digest portfolios itâ¿¿s not our intention to recommend one over another.

ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called ⿿enhanced⿝ indexes that attempt to achieve better performance through more active management of the index.

The financial sector has become more volatile and controversial during the 2008-2011 periods owing primarily to the housing bubble bust and collapse of security products created to accommodate rising real estate prices. As investors know this collapse has led to bailouts and bankruptcies. Some believe the sector is on the mend, but current data doesnâ¿¿t necessarily support this view. Uncertainty as to a positive resolution of these issues remains a drag on the sector.

One thing youâ¿¿ll note with charts posted are the similarities in trends and performance from one to another. This isnâ¿¿t a coincidence given overall index constituent similarities. Further, the easy money policies of the Fed during the period covered have made performance results hardly distinguishable one from another.

There are catchall sectors like XLF covering the entire sector and individual areas like banking, brokering and insurance for investors wishing to isolate and target their focus.

XLF (SPDR Financial Sector ETF) tracks the overall S&P Financial Select Sector Index. The fund was launched in December 1998 and is the granddaddy of the sector. AUM (Assets under Management) exceeds $6.8 billion and average daily trading volume is 75M shares. There are leveraged inverse/long ETFs available through ProShares and Direxion and options which may enhance daily trading volume. The expense ratio is .20% and dividend is $.17 making the yield as of June 2011 around 1.10%. YTD performance for the same period -6.40% reflecting previously mentioned financial uncertainties.

Data as of June 2011

XLF Top Ten Holdings & Weightings

  1. JPMorgan Chase & Co (JPM):                                     9.22%
  2. Wells Fargo Company (WFC):                                     8.00%
  3. Berkshire Hathaway Inc B (BRK.B):                             7.32%
  4. Citigroup Inc (C):                                                          6.40%
  5. Bank of America Corp DE (BAC):                                 6.36%
  6. Goldman Sachs Group, Inc. (GS):                                3.92%
  7. American Express Company (AXP):                             2.89%
  8. U.S. Bancorp (USB):                                                    2.63%
  9. MetLife Inc. (MET):                                                       2.49%
  10. Morgan Stanley (MS):                                                  2.00%

KBE (SPDR KBW Bank ETF) tracks the KBW Bank Index. It was launched in August 2005. AUM exceeds $1.5 billion and average daily trading volume is over 4.8M shares. The expense ratio is .35%. The current annual dividend equals $.18 making the current yield as of June 2011 .79% while the YTD performance is -9.75%. There are some developing inverse and leveraged long/short issues becoming available for the sector.

Data as of June 2011

KBE Top Ten Holdings & Weightings

  1. JPMorgan Chase & Co (JPM):                                     8.56%
  2. Citigroup Inc (C):                                                         6.79%
  3. Wells Fargo Company (WFC):                                     6.60%
  4. Bank of America Corp DE (BAC):                                 6.42%
  5. U.S. Bancorp (USB):                                                    5.99%
  6. Huntington Bancshares, Inc. (HBAN):                          4.88%
  7. Fifth Third Bancorp (FITB):                                         4.87%
  8. SunTrust Banks Inc (STI):                                           4.56%
  9. Capital One Financial Corporation (COF):                  4.56%
  10. Regions Financial Corporation (RF):                           4.55%

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