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9 Best Financial ETFs of 2021

The financial services industry isn’t what most investors would call “sexy.” For most people, it’s not even remotely exciting. Nonetheless, it is one of the largest industries in the world; the financial services market drives more than $22 quadrillion in annual revenue for the companies that participate in it.

That kind of money simply can’t be ignored.

Plenty of investors have made a fortune in the stock market by focusing their investments on nothing more than financial services companies. In fact, financial stocks make up a massive portion of Berkshire Hathaway’s holdings.

Yes, even the iconic investor Warren Buffett is into financial stocks. So, why not gain diversified access to growth in the financial sector with financial-focused exchange-traded funds (ETFs)?

Best Financial ETFs

Investing is a process that requires research, which poses two issues when it comes to investing in financial stocks:

  • Lack of Excitement. For many people, the financial industry isn’t very exciting and its products are often complex. As a result, research into the space can be a daunting process, which can lead to missing information or a poor understanding of what you’re investing in.
  • Time. Even if you enjoy researching financial companies, you’ll need to commit the time to do so. Many investors simply don’t have the time it takes to perform adequate research on a large list of stocks, financial or otherwise.

If you’re looking to gain exposure to the financial industry but don’t have the inclination or time to do the research, you should consider investing in financial ETFs.

These ETFs pool money from a large group of investors, using those funds to purchase a diversified portfolio of stocks and other securities issued by financial companies.

Through financial-focused ETFs, you’ll gain highly diversified exposure to the financial sector as a whole without having to devote hours of research to the process. Some of the best financial ETFs on the market today include:

1. SPDR S&P Regional Banking ETF (KRE)

The SPDR S&P Regional Banking ETF is offered by State Street Global Advisors, some of the most highly regarded financial professionals on Wall Street.

The fund was designed to closely track the S&P Regional Banking Select Industry Index. As a result, investors in the fund gain exposure to all S&P 500-listed companies that are identified as regional banks.

That means that you’ll gain exposure to some of the largest, most successful regional banks in the United States by investing in the ETF.

Key Stats

The fund comes with an incredibly low expense ratio and one of the best dividend yields in the industry. Add in solid historic performance, and you have a winner.

  • Expense Ratio: With an expense ratio of 0.35%, the ETF comes in below the industry-average expense ratio of 0.44%, according to The Wall Street Journal. This means you’ll be able to hold onto more of your returns when investing in the fund.
  • Dividend Yield: As a result of the fund’s investments in large regional banks, the dividend yield it offers is an attractive 2.78% as of the end of 2020.
  • Volatility: Regional banks aren’t known to experience high levels of volatility. However, prices may fluctuate rapidly when the U.S. Federal Reserve makes news or economic reports are released.
  • Assets Under Management: The fund has nearly $4 billion under management, making it one of the more popular financial ETFs on Wall Street today.
  • Asset Allocation: The vast majority of holdings in the fund are securities offered by large-cap regional bank issuers. Some of the largest holdings in the fund include SVB Financial Group (SIVB), Regions Financial (RF), KeyCorp (KEY), Fifth Third Bancorp (FITB), and First Republic Bank (FRC).
  • Historic Performance: The fund has had compelling performance, yielding returns of more than 40% over the past year. In the past three and five years, the fund generated annualized returns of 4.23% and 15.7%, respectively. Finally, the fund has had eight years in the green and six years in the red since inception.

Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up, you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals. Make sure you also read our Vanguard Personal Advisor Services review.


2. Vanguard Financials ETF (VFH)

You can’t make a list of the best ETFs without mentioning Vanguard at least once. The company is known for offering some of the lowest expense ratios on some of the best performing ETFs, index funds, and mutual funds on the market today.

As expected, the VFH comes with an industry-low expense ratio but doesn’t require investors to compromise returns. The fund was designed to provide highly diversified exposure to the financial industry as a whole.

Key Stats

Launched in 2004, the fund has a track record spanning over a decade and a proven history of performance.

  • Expense Ratio: With an expense ratio of just 0.10%, the fund comes with some of the lowest costs seen among any exchange-traded fund in any sector.
  • Dividend Yield: With a dividend yield of 1.93%, the fund offers reliable income for those taking advantage of income investing strategies. Moreover, dividends can be reinvested to increase holdings and maximize earnings potential.
  • Volatility: The financial sector isn’t especially volatile as a whole. However, the fund offers diversified exposure to the sector, including fintech companies, some of which do experience high levels of volatility. While the larger, more stable holdings in the fund limit the volatility experienced, investors should pay close attention to economic data releases and U.S. Federal Reserve statements for clues as to where the ETF is headed.
  • Assets Under Management: The fund has attracted more than $9 billion from the investing community. With such a large amount of assets piled into the fund, it’s clearly a popular option among investors.
  • Asset Allocation: As mentioned above, the fund is designed to provide diversified exposure to the financial industry as a whole. Some of the largest holdings in the fund include JPMorgan Chase (JPM), Berkshire Hathaway (BRK.B), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC).
  • Historic Performance: The fund has been a strong performer since inception, with 10 years in the green and six closing in the red. Over the past year, investors have enjoyed gains of more than 24%, with the past three and five years producing annualized gains of 6.07% and 15.58%, respectively.

3. Financial Select Sector SPDR Fund (XLF)

Another fund offered by State Street Advisors, the Financial Select Sector SPDR is designed to provide low-cost exposure to U.S. financial stocks. The fund does so by tracking the S&P Financial Select Sector Index.

Because the ETF tracks the S&P Financial Select Sector Index, investments in the fund are placed primarily in large-cap stocks within the financial sector. These include banks, fintech companies, payment processors, and more.

Key Stats

This fund was designed to provide low-cost exposure to financials while providing strong growth and income. Here are the key stats:

  • Expense Ratio: The fund comes with an incredibly low expense ratio of just 0.12%.
  • Dividend Yield: The dividend yield on the fund comes in at 1.73%. While it’s not the highest dividend yield on this list, the fund is known for providing investors with reliable income.
  • Volatility: With exposure to the entire financial sector, there will be some exposure to volatility. However, the majority of assets held in the fund are invested in large-cap stocks, helping to minimize volatility risk. Nonetheless, you can expect to see volatile movement around economic reports and comments from the Federal Reserve.
  • Assets Under Management: The ETF has attracted over $38 billion in investments. With such a massive amount of assets under management, it’s clear the fund is highly popular.
  • Asset Allocation: The vast majority of holdings in the fund are large-cap financial companies. The top holdings are all major banks, including Berkshire Hathaway (BRK.B), JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C).
  • Historic Performance: As is the case with all financial ETFs on this list, the fund has performed incredibly well. Over the past year, returns have clocked in at 24.75%, with annualized gains in the past three and five years coming in at 6.11% and 15.87%, respectively. Since its inception, the fund has had 14 years in the green and eight years in the red.

4. SPDR S&P Bank ETF (KBE)

Yet another fund by State Street Global Advisors, the SPDR S&P Bank ETF was designed to provide exposure to the banking industry with diversification in focus.

The fund tracks the S&P Banks Select Sector Index, which includes all banks listed on the S&P 500 with a focus on publicly traded national money centers and leading regional banks. Thus, the fund gives you widespread exposure to U.S. bank stocks.

Key Stats

Investors enjoy the fund because of the relatively low expense ratio that’s coupled with strong dividend payments and historic price appreciation. Here are the key stats:

  • Expense Ratio: The expense ratio on the fund is slightly below average, coming in at 0.35%.
  • Dividend Yield: With a dividend yield of 1.95%, investors in the fund don’t just enjoy price appreciation, they can count on consistent income.
  • Volatility: Banks aren’t known to experience high levels of volatility. However, it’s important to keep in mind that economic conditions and interest rates play a major role in the profitability of these companies. As a result, it’s important to keep a close eye on economic developments when investing in this fund.
  • Assets Under Management: The ETF has more than $3.5 billion in assets, suggesting it is a popular option among stock market investors.
  • Asset Allocation: Designed to provide diversified exposure to the U.S. banking sector, the vast majority of holdings in the ETF’s portfolio are large-cap U.S. banks. The top five holdings in the fund include Signature Bank (SBNY), SVB Financial (SIVB), People’s United Financial (PBCT), Regions Financial (RF), and Comerica (CMA).
  • Historic Performance: The performance on the fund has been compelling over the past year, to say the least, with investors experiencing more than 30% gains. Over the past three and five years, annualized returns have been 2.84% and 14.35%, respectively. Since inception, the fund has ended nine years in the green and six in the red.

5. iShares U.S. Financials ETF (IYF)

Offered by iShares, the U.S. Financials ETF is managed by some of the most trusted professionals on Wall Street.

The fund was designed to provide exposure to the broader U.S. financial sector. When you invest in the ETF, you’ll enjoy exposure to banks, insurers, and credit card companies.

Importantly, this is a domestic fund, so all positions held by the fund are in U.S.-based companies.

Key Stats

The expense ratio on the fund is right in line with the average, and with outsize returns and strong dividend payments, it has become a popular option among investors. Here are the key stats:

  • Expense Ratio: With an expense ratio of 0.42%, the cost associated with the fund is right around the industry average of 0.44%.
  • Dividend Yield: With a dividend yield of 1.56%, the fund isn’t the highest income earner on this list, but it does offer consistent dividend payments investors can take to the bank.
  • Volatility: The U.S. financials sector isn’t known for high levels of volatility. Instead, relatively consistent trends are created in the up direction when economic conditions are positive and in the down direction when economic conditions are negative. So, when investing in the fund, keep a close eye on economic reports.
  • Assets Under Management: The fund has attracted more than $1.5 billion from the investing community. Although it’s not the most popular fund on this list, attracting more than $1 billion from investors is no small feat.
  • Asset Allocation: The ETF provides diversified exposure to the U.S. financial market. The vast majority of its holdings are banks, insurers, or credit card companies. The top five holdings in the fund include Berkshire Hathaway (BRK.B), JPMorgan Chase (JPM), Visa (V), Bank of America (BAC), and MasterCard (MC).
  • Historic Performance: The fund is known for producing relatively consistent gains, with returns over the past year coming in at 18.04%. In the past three and five years, annualized gains have come in at 7.73% and 14.59%, respectively. Since inception, the fund has closed 12 years in the green and eight years in the red.

6. Invesco S&P 500 Equal Weight Financials ETF (RYF)

Invesco is another fund manager that has earned a strong reputation on Wall Street. So, when you invest in its S&P Equal Weight Financials ETF, you can trust your money is in the right hands.

The fund was designed to track the S&P 500 Equal Weight Financials index, an index that provides equal weight to stocks of all sizes in the financial sector of the S&P 500. This includes banks, credit card companies, and insurers.

As a result, an investment in the fund provides diversified exposure to the U.S. financial sector, including banks, insurers, credit card companies, and fintech companies.

Key Stats

This is another fund with an expense ratio that’s slightly below average. Moreover, the returns on the fund in terms of both price appreciation and dividends have been impressive to date. Here are the key stats:

  • Expense Ratio: With an expense ratio of 0.40%, the fund’s costs are four basis points below the industry average.
  • Dividend Yield: The fund comes with a dividend yield of 1.97%, which means the fund provides strong dividend payments, delivering the income many investors look for.
  • Volatility: The fund is designed to provide widespread exposure to the U.S. financial industry. As a whole, the industry ebbs and flows with the state of the U.S. and global economy. So, for clues as to when the fund will be the most volatile, keep a close eye on economic reports.
  • Assets Under Management: With only $257 million under management, the ETF isn’t the most popular fund on Wall Street. However, this is one of those rare cases where a lack of popularity doesn’t equate to a lack of performance.
  • Asset Allocation: The fund is designed to provide diversified exposure to the financial industry. While there are some mid-cap assets held, most assets in the fund’s investment portfolio are large-cap U.S.-based financial companies. The top five holdings in the portfolio include SVB Financial (SIVB), People’s United Financial (PBCT), Goldman Sachs (GS), Regions Financial (RF), and Capital One Financial (COF).
  • Historic Performance: The performance of the fund has been impressive, to say the least. Over the past year, the fund has resulted in gains of more than 33%. In the past three and five years, annualized returns have come in at 8.27% and 16.78%, respectively.

7. Fidelity MSCI Financials Index ETF (FNCL)

It’s hard to create a list of the top financial ETFs without mentioning Fidelity, yet another well-respected fund manager on Wall Street.

The fund was designed to provide diversified exposure to the U.S. financial industry. To do so, the fund tracks the MSCI USA IMI Financials Index.

The index is composed of the broad universe of investable small-, medium-, and large-cap companies in the U.S. financial sector, meaning that when you invest in the fund, you’ll gain exposure to U.S. financial companies of all sizes.

Key Stats

With one of the lowest expense ratios and strongest historic performances on this list, the ETF has captured the attention of many investors. Here are the key stats:

  • Expense Ratio: With an expense ratio of 0.08%, investors in the fund enjoy some of the lowest costs available today.
  • Dividend Yield: The fund comes with a dividend yield of 1.91%. That’s an impressive dividend yield, providing investors with strong and consistent income.
  • Volatility: Because the fund invests in financial stocks of all market caps, investors are exposed to the volatility that comes with investing in small-cap stocks. Much of this volatility is offset by the large-cap holdings in the portfolio, but investors should prepare for big movements around economic reports and policy changes.
  • Assets Under Management: The fund is in control of well over $1 billion in investor money. Although it’s not the largest on this list, breaking the $1 billion mark is a major achievement, showing the fund is popular.
  • Asset Allocation: Although the fund provides exposure to small-, mid-, and large-cap financial stocks, the majority of the assets held are in large-cap banks and credit card companies. The top five holdings include JPMorgan Chase (JPM), Berkshire Hathaway (BRK.B), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C).
  • Historic Performance: The fund is known for creating strong gains, with investors earning 24.43% over the past year. In the past three and five years, annualized returns have come in at 6.08% and 15.55%, respectively. Since inception, the fund has closed four years in the green and three years in the red.

8. Invesco S&P SmallCap Financials ETF (PSCF)

The Invesco S&P SmallCap Financials ETF provides a different approach compared to others on this list.

While most financial ETFs invest the vast majority of their assets in large-cap banks, insurance companies, credit card companies, and fintech companies, this fund is focused on the small-cap opportunities in the financial sector.

The goal of the fund is to provide diversified exposure to small-cap financial companies in the United States. It achieves this goal by tracking the S&P SmallCap 600 Capped Financials & Real Estate Index.

The index includes companies in the financial sector — including banks, investment services, credit cards, real estate, and insurance — that trade with a small market capitalization.

As a result, investors will gain diversified exposure to small-cap financial and real estate companies.

Key Stats

  • Expense Ratio: The expense ratio on the fund is 0.29%, which clocks in well below the industry average and gives you the ability to keep more of your earnings.
  • Dividend Yield: With a dividend yield of 5.22%, the fund is one of the biggest dividend payers in the financial sector, making it a strong choice for income investors or investors that look for dividend stocks in order to reinvest their dividend payments.
  • Volatility: As an ETF that invests in small-cap stocks, this fund will experience quite a bit more volatility than other options on this list. Like other financial funds, the biggest moves generally take place around economic updates.
  • Assets Under Management: Due to the dangers associated with small-cap investments, the fund isn’t quite as popular as some of the larger funds on this list, with only around $37 million under management.
  • Asset Allocation: The fund is focused on investing in the small-cap financial industry. The top five holdings in the fund include Innovative Industrial Properties (IIPR), Community Bank System (CBU), Pacific Premier Bancorp (PPBI), Agree Realty (ADC), and BankUnited (BKU).
  • Historic Performance: Although small-cap stocks tend to be volatile, the performance of this particular small-cap fund has been impressive. Over the past year, the fund has gained 16.34%, with three- and five-year annualized returns coming in at 5.59% and 11.52%, respectively. Since inception, the fund has ended eight years in the green with just two in the red.

9. Direxion Daily Regional Banks Bull 3X Shares (DPST)

The Direxion Daily Regional Banks Bull 3X Shares ETF is another fund that breaks the mold compared to others on this list.

Like some others, the fund is aimed at providing a diversified portfolio of regional banks stocks — specifically, those that trade on the S&P 500. That means the majority of its holdings are large-cap regional banks that stand out as leaders in the U.S. market.

However, unlike other funds on this list, DPST is a leveraged fund. The goal is to produce 300% of the performance of the S&P Regional Banks Select Industry Index, an index designed to track the performance of publicly traded regional banks. This is achieved by using derivative investments to expand the return potential of the index.

As is the case with all funds centered around leverage, the fund comes with increased costs and volatility risk in exchange for the potential of multiplied gains.

Key Stats

If you look at the history of the fund alone, there’s no way it deserves to be on this list — that is, until you look at the performance of the fund in 2021 so far. Here are the key stats:

  • Expense Ratio: The net expense ratio on the fund comes in at 1.01%, which is more than double the industry average of 0.44%.
  • Dividend Yield: The dividend yield on the fund isn’t very exciting either. It currently sits at just 0.41%.
  • Volatility: Because the fund uses leverage to expand potential returns, high levels of volatility can be expected. As a result, you should only consider investing in this fund if you have experience in the stock market and are comfortable working with high-volatility assets.
  • Assets Under Management: With around $363 million under management, the fund isn’t the most popular on this list, but with a strong performance to date in 2021, it is quickly gaining popularity.
  • Asset Allocation: The vast majority of assets held in the fund’s portfolio are derivative instruments based on large-cap regional banks. The top five holdings in the portfolio include Goldman Sachs FS Treasury Instruments Fund (FTIXX), S&P Regional Banks Select Industry Index Swap, Goldman Sachs FS Government Instruments Fund (FGTXX), SVB Financial Group (SIVB), and Regions Financial (RF).
  • Historic Performance: From a one-year, three-year, and five-year perspective, the fund’s returns haven’t been impressive at -19.20%, -34.57%, and 0.62%, respectively. However, the fund’s stellar performance to date in 2021 earned it a position on the list; year to date, it has generated gains of more than 79%. In the past three months, the gains have been 132.72%. That’s hard to ignore.

Final Word

Investing in ETFs gives investors a way to gain exposure to heavily diversified portfolios in sectors of their choosing, making them a perfect option for newcomers to the stock market as well as those who simply don’t have the time to do extensive research on every individual stock they’re investing in.

Nonetheless, when investing in ETFs, it’s important to keep in mind that some research is still needed because every ETF will come with its own expenses and track record of historic performance.

As you can see from the list above, these metrics vary wildly, and blindly choosing ETFs to invest in may lead to significant losses.

By diving into the expenses and history of the funds you’re considering, you’ll have all the information you need to make successful investment decisions.

Joshua Rodriguez
Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

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