Top 10 Financial ETFs

#7: First Trust Financials AlphaDex ETF (FXO)

FXO follows the StrataQuant Financials Index which is an "enhanced" index developed, maintained and sponsored by the NYSE Euronext. It creates financial stocks for the index from the Russell 1000 index. (Note: the key determinant with enhanced indexes is they "should" outperform on the upside and "may" underperform on the downside. This makes for more active position management from our view.) The fund was launched in May 2007.  The expense ratio is .70%. AUM is currently near $74M while average daily trading volume is near 69K shares. As of late November 2011 the annual dividend yield was 2.69% and YTD return -15.70%. (Note: the performance indicates a good return in both up and down market environments over this period.)

 

FXO Top Ten Holdings & Weightings

Data as of November, 2011

1. Arch Capital Group Ltd (ACGL): 1.42%
2. Alliance Data Systems Corporation (ADS): 1.37%
3. Fidelity National Financial Inc. (FNF): 1.34%
4. Chubb Corp (CB): 1.33%
5. Allied World Assurance Company Holdings AG (AWH): 1.29%
6. ACE Ltd (ACE): 1.28%
7. NASDAQ OMX Group, Inc. (NDAQ): 1.27%
8. American Financial Group Inc (AFG): 1.21%
9. Discover Financial Services (DFS): 1.19%
10. Ares Capital Corporation BDC (ARCC): 1.19%

 

 

#8: PowerShares Dynamic Financial ETF (PFI)

 

PFI follows the Dynamic Intellidex Index which is comprised of stocks of U.S. financial companies. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. This is another "enhanced" index where the goal is to outperform more static indexes in all market conditions. (Note: as with FXO we believe you should also consider more active position management strategies with these funds.) The fund was launched October 2006. The expense ratio is .60%. AUM equal $17 million and average daily trading volume is 7K shares. (Note: AUM is less than $25M which generally is the threshold for a successful fund with good liquidity.) As of late November 2011 the annual dividend yield was 1.6% and YTD return -13.5%. (Note: Despite low AUM low volume the returns overall have been relatively better, merit close monitoring and your consideration.)

PFI Top Ten Holdings & Weightings

Data as of November, 2011

1. U.S. Bancorp (USB): 2.79%
2. Moody's Corporation (MCO): 2.72%
3. Chubb Corp (CB): 2.69%
4. Aflac Inc (AFL): 2.62%
5. Prudential Financial Inc (PRU): 2.62%
6. ACE Ltd (ACE): 2.58%
7. Principal Financial Group (PFG): 2.55%
8. M&T Bank Corp (MTB): 2.50%
9. Discover Financial Services (DFS): 2.47%
10. American Express Co (AXP): 2.46%

 

#9: SPDR S&P Capital Markets ETF (KCE)

KCE tracks the KBW Capital Markets Index which consists of firms which we would commonly refer to as brokers and investments banks. The fund was launched in November 2005. The expense ratio is .35%. AUM is low at $24M which may in part be due to industry consolidation where brokers became banks. Average daily trading volume is around 53K shares. As of late November 2011 the annual dividend yield was 2.70% and YTD return was -32.20%.

An alternative choice would be IAI (iShares Dow Jones U.S. Broker-Dealer ETF) which has similar features and results to KCE but with a higher fee at .48%.

KCE Top Ten Holdings & Weightings

Data as of November, 2011

1. State Street Corp (STT): 7.76%
2. Franklin Resources (BEN): 7.71%
3. Morgan Stanley (MS): 7.46%
4. CME Group, Inc. A (CME): 7.15%
5. The Goldman Sachs Group Inc (GS): 6.10%
6. Raymond James Financial, Inc. (RJF): 4.76%
7. TD Ameritrade Holding Corporation (AMTD): 4.42%
8. IntercontinentalExchange, Inc. (ICE): 4.28%
9. Charles Schwab Corp (SCHW): 4.17%
10. Invesco Ltd. (IVZ): 4.13%

#10: PowerShares Global Listed Private Equity ETF (PSP)

PSP tracks the Global Listed Private Equity Index. This is a much more unique or niche area of the financial sector including global private banks, investment companies, venture capitalists, brokers and others. These consist of between 40-60 publicly listed companies whose principal business is to invest in and lend capital to privately held companies or what some would term "merchant banking". The expense ratio is .60% which is higher than the group but is a more specialized ETF. AUM exceeds $262M and averaged daily trading volume is roughly 309K shares. As of late November 2011 the annual dividend yield (including one-time factors such as return of principal and so forth) was 13.28% and YTD return -26.70%.

PSP Top Ten Holdings & Weightings

Data as of November, 2011

1. Ratos AB (RATO B): 4.62%
2. Leucadia National Corporation (LUK): 4.51%
3. Hal Trust (HAL): 4.45%
4. Blackstone Group LP (BX): 4.19%
5. Onex Corp Subordinate Voting Share (OCX): 4.18%
6. Partners Group Holding (PGHN): 3.66%
7. 3i Group (III): 3.60%
8. Wendel Investissement (MF): 3.41%
9. Ares Capital Corporation BDC (ARCC): 3.41%
10. Eurazeo Common Stock (EUZOF): 3.27%

 

It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest. Follow us on Twitter and Facebook as well and join our group conversations.

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The ETF Digest has no current positions in the featured ETFs.

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(Source for data is from ETF sponsors and various ETF data providers)

 

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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