The financial services sector is rapidly expanding due to rising demand for insurance and loans, globalization and urbanization driving investments, global economic growth, and the integration of fintech-enabled digital payment solutions.
Given this positive sentiment, adding financial ETFs such as The Financial Select Sector SPDR Fund (XLF), Vanguard Financials Index Fund ETF (VFH), and iShares U.S. Financials ETF (IYF) might be a wise choice for a diversified portfolio.
The U.S. financial services industry is being driven by the growing demand for insurance and loans among consumers. Globalization and urbanization are leading to an increasing demand for end-user investments. The industry is also propelled by global economic growth, leading to the increased demand for financial services.
Moreover, the global banking and financial services market is expected to grow at a CAGR of 7.9% from 2023 to 2030. Furthermore, market players are significantly integrating with financial technology-enabled banks to offer modern digital payment solutions, including mobile wallets and contactless payment, which contributes to the segment's growth.
With that in mind, let’s look at the fundamentals of the top three Financial Equities ETFs, beginning with the third one.
ETF #3: iShares U.S. Financials ETF (IYF)
IYF is an exchange-traded fund launched by BlackRock, Inc. BlackRock Fund Advisors manage it. It invests in stocks of companies operating across financial sectors. It invests in growth and value stocks of companies across diversified market capitalization.
With $3.15 Billion in AUM, its top holdings are Berkshire Hathaway Inc. Class B (BRK.B) with a 12.6% weighting, JPMorgan Chase & Co. (JPM) at 9.3%, and Bank of America Corp (BAC) at 4.4% weight.
The ETF’s expense ratio is 0.39%, compared to the category average of 1.52%. IYF’s fund inflows were $17.55 million over the past month. The fund pays an annual dividend of $1.38, which translates to a 1.34% yield at the current price level.
IYF has gained 10% over the past three months to close the last trading session at $103.47. It has a five-year beta of 1.05. The fund’s NAV was $103.55 as of September 27, 2024.
IYF’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The fund has an A grade for Trade and Buy & Hold. IYF is ranked #4 out of 41 in the Financial Equities ETFs ETF. Click here to access all the IYF ratings.
ETF #2: Vanguard Financials Index Fund ETF Shares (VFH)
VFH is an exchange-traded fund launched and managed by Vanguard Equity Index Group that tracks the MSCI US IMI 25/50 Financials Index. It is passively managed, holds U.S. financial stocks across all market caps, and uses a market-cap selection and weighting scheme to capture the broader financial market.
With $10.08 billion in AUM, VFH’s top holding is JPM, which has an 8.8% weighting in the fund. It is followed by BRK.B at 8.6% and Mastercard Incorporated (MA) at 5.5% weighting. The fund has a total of 404 holdings.
VFH has an expense ratio of 0.10%, lower than the category average of 1.52%. The fund has a NAV of $109.58 as of September 27, 2024. The ETF’s net inflows were $99.86 million over the past three months.
VFH pays a $1.95 annual dividend yielding 1.78% at the prevailing price level. The fund’s dividend payouts have grown at a CAGR of 5.6% over the past five years. Also, VFH has raised its dividends for three consecutive years.
VFH has gained 9.8% over the past three months and 18.6% over the past nine months to close the last trading session at $109.29.
VFH’s POWR Ratings reflect solid prospects. Its overall rating of A equates to a Strong Buy in our proprietary rating system.
VFH has an A grade for Buy & Hold and Trade. Of the 41 ETFs in the same group, it is ranked #2. Get all VFH ratings here.
ETF #1: The Financial Select Sector SPDR Fund (XLF)
XLF provides efficient exposure to the U.S. financials segment. Its cap-weighted, S&P 500-only portfolio concentrates on large banks and avoids small caps. It invests in companies from industries like diversified financial services, insurance, commercial banks, and capital markets. The fund tracks the Financial Select Sector Index.
The fund has an AUM of $41.57 billion. Its top holdings include BRK.B with a 13.32% weighting, followed by JPM at a 9.61% weighting, and Visa Inc. (V) at 7.24%. XLF has a total of 73 holdings.
The fund has an expense ratio of 0.09%, lower than the category average of 1.52%. Over the past six months, XLF fund inflows came in at $649.22 million.
XLF pays an annual dividend of $0.66, which translates to a yield of 1.47% at the current share price. Its dividend payouts have grown at a CAGR of 3.35% over the past five years.
XLF has surged 7.2% over the past six months and 35.1% over the past year to close the last trading session at $44.86. The fund has a NAV of $45.92 as of September 27, 2024.
XLF’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
XLF has an A grade for Buy & Hold and Trade. The fund has topped the list of 41 ETFs in the same group.
To access all the POWR Ratings for XLF, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
IYF shares were trading at $103.35 per share on Monday afternoon, down $0.12 (-0.12%). Year-to-date, IYF has gained 22.22%, versus a 21.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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