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%

 

VFH (Vanguard Financials ETF) tracks the MSCI US Investable Market Financials 25/50 Index. The fund was launched in January 2004. The expense ratio is .25%. AUM equal $600M with average daily trading volume of less than 130K shares. The annual dividend is $.13 making the current yield as of June 2011 .42% with YTD performance -5.00%.

Data as of June 2011

VFH Top Ten Holdings & Weightings

  1. JP Morgan Chase & Co (JPM):                                     7.56%
  2. Wells Fargo Company (WFC):                                     6.63%
  3. Bank of America Corp (BAC):                                      5.64%
  4. Citigroup, Inc. (C):                                                       5.38%
  5. Goldman Sachs Group, Inc. (GS):                               3.22%
  6. Berkshire Hathaway Inc B (BRK.B):                             3.09%
  7. U.S. Bancorp (USB):                                                    2.13%
  8. American Express Company (AXP):                             2.05%
  9. MetLife Inc. (MET):                                                       1.98%
  10. Morgan Stanley (MS):                                                  1.56%

 

KRE (SPDR KBW Regional Banking ETF) follows the KBW Regional Banking Index. Launched in June 2006 the index uniquely consists of an equally weighted index of regional bank issues. The expense ratio is .35%. AUM equal $560 million while average daily trading volume is a high 2.3 million shares. The high volume means more speculation within the sector given more options trading and the employment of long/short strategies. The annual dividend is currently $.31 making the current yield as of June 2011 roughly 1.25% with total YTD performance -7.7%.

Data as of June 2011

KRE Top Ten Holdings & Weightings

  1. SVB Financial Group (SIVB):                                       2.89%
  2. Whitney Holding Corporation (WTNY):                        2.73%
  3. Associated Banc-Corp (ASBC):                                   2.64%
  4. Community Bank System (CBU):                                  2.59%
  5. First Midwest Bancorp (FMBI):                                       2.48%
  6. CVB Financial Corporation (CVBF):                             2.45%
  7. Wintrust Financial Corp (WTFC):                                 2.45%
  8. Webster Financial Corp (WBS):                                   2.41%
  9. Boston Private Financial Holdings Inc (BPFH):            2.40%
  10. Sterling Bancshares, Inc. (SBIB):                                 2.40%

IYF (iShares Dow Jones U.S. Financial Sector ETF) tracks the index of the same name but is broader than just the banking sector. It was launched in May 2000. The expense ratio is higher than most at .48%. AUM exceeds $460M with average daily trading volume of 540K shares.

As with other sectors, remember ETF sponsors must issue and their interests arenâ¿¿t aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector. The dividend is $.58 making the current yield as of June 2011 near 1% with YTD performance of -5.83%.

Data as of June 2011

IYF Top Ten Holdings & Weightings

  1. JPMorgan Chase & Co (JPM):                         7.34%
  2. Wells Fargo Company (WFC):                         6.14%
  3. Citigroup Inc (C):                                             5.18%
  4. Bank of America Corp DE (BAC):                     5.15%
  5. Berkshire Hathaway Inc B (BRK.B):                 3.31%
  6. Goldman Sachs Group, Inc. (GS):                   2.63%
  7. American Express Company (AXP):                 2.39%
  8. U.S. Bancorp (USB):                                        2.13%
  9. Visa, Inc. (V)                                                    1.74%
  10. MetLife Inc. (MET):                                         1.58%

 

PSP (PowerShares Listed Private Equity ETF) 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 $425M and averaged daily trading volume is roughly 265K shares. The dividend is currently $1.52 (which may include onetime factors) making the current yield nearly 15% as of June 2011. The YTD return as of June 2011 is -5.30%.

Data as of June 2011

PSP Top Ten Holdings & Weightings

  1. Leucadia National Corporation (LUK):                          5.05%
  2. Ratos AB (RATO B):                                                    5.03%
  3. SPDR S&P 500 (SPY):                                                 4.94%
  4. Financial Select Sector SPDR (XLF):                           4.94%
  5. Hal Trust (HAL):                                                           4.61%
  6. Wendel Investissement (MF.PA):                                4.19%
  7. 3i Group (III):                                                               4.15%
  8. Ares Capital Corporation BDC (ARCC):                       3.87%
  9. Partners Group Holding (PGHN):                                3.68%
  10. Onex Corp Subordinate Voting Share (OCX):              3.57%

 

RKH (HOLDRS Merrill Lynch Regional Bank Trust) tracks no index but is a trust holding a fixed portfolio. The fund was launched in June 2000. These vehicles have benefits and risks which in addition to market risk are primarily concentration issues. In fact, it would be misleading to think RKH is a ⿿regional⿝ bank issue given its heavy weightings (below) in mega-banks. As time passes some issues may merge or even cease to exist. The proceeds are distributed to holders and the remaining issues grow in percentage. The fees are flat and fixed by the trustee. Trading activity is restricted to 100 share round lot trades. AUM currently is $325M and average daily trading volume is 335K shares. The current dividend is $.96 making the yield 1.25% and YTD performance as of June 2011 is -10.50%.

Data as of June 2011

RKH Top Ten Holdings & Weightings

  1. JPMorgan Chase & Co (JPM):                                    23.43%
  2. Wells Fargo Company (WFC):                                    19.49%
  3. U.S. Bancorp (USB):                                                  17.28%
  4. PNC Financial Services Group Inc. (PNC):                  7.43%
  5. State Street Corporation (STT):                                   5.52%
  6. Bank of New York Mellon (BK):                                   4.75%
  7. Bank of America Corp DE (BAC):                                 4.08%
  8. Northern Trust Corporation (NTRS):                           4.07%
  9. BB&T Corp (BBT):                                                       3.13%
  10. SunTrust Banks Inc (STI):                                           2.99%

  

 

KIE (SPDR KBW Insurance ETF) tracks the KBW Insurance Index which is a float adjusted market-modified-market capitalization-weighted index. Beyond that being a mouthful, includes personal and commercial insurance, property/casualty insurance, life insurance, reinsurance, insurance brokerage and financial guarantee. The fund was launched in November 2005. AUM is at $245M and averaged daily trading volume is 515K shares. The expense ratio is .35%. The dividend is $.48 making the current yield 1.10% and as of June 2011 the YTD return is -5.80%.

Data as of June 2011

KIE Top Ten Holdings & Weightings

  1. MetLife Inc. (MET):                                         9.24%
  2. The Travelers Companies, Inc. (TRV):            8.26%
  3. Prudential Financial, Inc. (PRU):                      7.04%
  4. Aflac, Inc. (AFL):                                              6.30%
  5. Aon Corp. (AON):                                            5.41%
  6. Ameriprise Financial Inc (AMP):                       4.82%
  7. Principal Financial Group (PFG):                     4.29%
  8. Marsh & McLennan Companies, Inc. (MMC):  4.25%
  9. Lincoln National Corp. (LNC):                          4.12%
  10. Hartford Financial Services Group, Inc. (HIG):            4.10%

 

 

FXO (First Trust Financials AlphaDex ETF) 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. The fund was launched in May 2007. AUM is currently near $110M while average daily trading volume is near 345K shares. The expense ratio is .70%. The dividend is currently at $.23 and the current yield as of June 2011 is 1.63% and YTD return -2.00%.

 

Data as of June 2011

FXO Top Ten Holdings & Weightings

  1. Assured Guaranty, Ltd. (AGO):                                    1.24%
  2. Alliance Data Systems Corporation (ADS):                   1.21%
  3. Fidelity National Financial Inc. (FNF):                          1.19%
  4. Hartford Financial Services Group, Inc. (HIG):              1.17%
  5. The Travelers Companies, Inc. (TRV):                        1.16%
  6. Chubb Corporation (CB):                                             1.16%
  7. Capital One Financial Corporation (COF):                    1.15%
  8. Arch Capital Group, Ltd. (ACGL):                                1.14%
  9. NASDAQ OMX Group, Inc. (NDAQ):                           1.14%
  10. Ares Capital Corporation BDC (ARCC):                       1.14%

KCE (SPDR KBW Capital Markets ETF) 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. AUM is low at $65M which may in part be due to industry consolidation. Average daily trading volume is around 65K shares. The expense ratio is .35%. The dividend is only $.15 making the current yield as of June 2011 .40%. Much of the low yield is due to forced government dictates for large broker/dealers after the financial crisis of 2008. YTD performance is -10.25%.

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%.

Data as of June 2011

KCE Top Ten Holdings & Weightings

  1. State Street Corporation (STT):                       7.66%
  2. Morgan Stanley (MS):                                      6.73%
  3. Goldman Sachs Group, Inc. (GS):                   6.28%
  4. Charles Schwab Corporation (SCHW):                        6.16%
  5. CME Group, Inc. A (CME):                              5.87%
  6. Invesco Ltd. (IVZ):                                           5.07%
  7. T. Rowe Price Group (TROW):                                    4.85%
  8. Lazard, Ltd. (LAZ):                                           4.85%
  9. Franklin Resources (BEN):                              4.69%
  10. Raymond James Financial, Inc. (RJF):             4.57%

 

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize more oriented to XLF than other issues from ProShares and Direxion.

The financial sector has been a drag for investors since mid-2010 as continued uncertainties remain over the fallout from the 2008 financial crisis. Since many banks still own much in the way of toxic assets not marked to cost versus market values investors don⿿t know the extent of potential losses. Further, many banks face litigation arising from mortgage packaging and sales practices. As this is, written Bank of America (BAC) has offered an $8.5 billion settlement to plaintiffs alleging misleading sales practices. This might be a good thing to clean this mess up but looking at the details one is struck by the following statement: ⿿the settlement does not release investors⿿ securities law or fraud claims based upon disclosures made in connection with their decision to purchase, sell, or hold securities issued by the trusts.⿝

In addition, financial companies have an unknown exposure to Euro Zone debt which is still haunting the region. Another bailout is likely there which caps the upside for many of these institutions.  

For further information about portfolio structures using this or other ETFs see www.etfdigest.com .

You may address any feedback to: feedback@etfdigest.com   

(Source for holding data is from ETF Database and from various sponsors.)
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.