A Conservative ETF Approach to the Financials

NEW YORK (TheStreet) - Earnings season is always an exciting time for investors as companies hailing from across the market spectrum present their performance results for the most recent quarter and provide insight regarding their outlooks for the coming months and year.

Already, a number of heavyweights including Apple ( AAPL), International Business Machines ( IBM) and Alcoa ( AA) have stepped up to the plate, releasing quarterly figures which have provided investors with valuable insight into their respective futures.

Given the volume of companies slated to report in the coming weeks, picking individual winners can prove to be a difficult and time-consuming task. Those utilizing a conservative, buy-and-hold investing strategy may find ETFs to be appropriate tools for navigating these noisy next few weeks.

ETF for Bank Earnings

Financials in particular will take center stage as a slew of industry titans and smaller regional players step up to the plate. In the latter half of this week, investors will be greeted with reports from banks of all sizes including Wells Fargo ( WFC), Bank of America ( BAC), Fifth Third ( FITB), U.S. Bancorp ( USB), and PNC ( PNC).

Already, investors have gotten a taste of what to expect from these firms. JPMorgan ( JPM) and Citigroup ( C) have presented their earnings results and so far, the performance has been mixed. While JPMorgan reported noticeably strong earnings, Citi fell short of analysts' expectations.

The U.S. financial industry is heavily represented within the ETF industry with fund providers boasting products which slice the industry in a variety of ways.

For instance, iShares currently sponsors five different products designed to target U.S. financial institutions. These funds range from the broad-reaching iShares Dow Jones U.S. Financial Sector Index Fund ( IYF) to subsector products such as the iShares Dow Jones U.S. Broker-Dealers Index Fund ( IAI).

Long-term investors focused on the banking industry would be best off using a product which paints the industry with broad brush strokes -- combining exposure to a collection of both Wall Street kings and smaller, more volatile regional players. This mix will ensure long-term stability while capturing short-term bursts of strength.

The SPDR KBW Bank ETF ( KBE) is well suited for this type of long-term approach. The fund's index is headlined by industry leaders; JPM, C, WFC, and BAC represent KBE's largest four positions and collectively account for a third of the fund's assets.

The remaining percentage of KBE's index is spread across over 20 smaller firms including USB, Zions Bancorporation ( ZION) and Keycorp ( KEY).

KBE's balanced approach to targeting the financial realm has proved effective recently, allowing the fund to tread higher in our long-term momentum rankings and outperform a variety of other banking-related ETFs, including IYF, SPDR KBW Regional Banking ETF ( KRE) and IAI in the most recent month period. If strength is in store for the financials throughout the current earnings season, this outperformance looks set to continue.

Although the excitement of earnings season is at the forefront of many investors' minds, it is important to keep a level head when navigating the markets. Using a well balanced ETF such as KBE, conservative investors can watch all the action from a safe place.

Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management did not own any of the equities mentioned.

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.

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