4 Top Ranked Financials ETFs For Your Portfolio

The financial sector is attracting a lot of investor attention lately. After President Donald Trump passed the tax reform last year, analysts are highly optimistic about the financial sector’s performance owing to recent trends in the sector.

The Senate recently passed the deregulation bill, scaling back Dodd Frank. This is expected to be a huge positive for regional banks. Moreover, the current market sentiment around rate hikes by the Fed is expected to play in favor of the overall financial sector.

Cause for Appeal

In a landmark victory for Trump, the Senate passed a massive banking deregulation bill. In a rare showing of bipartisanship, the Senate voted 67 to 31 in favor of the bill, intended to help small banks become more competitive. Banks with less than $10 billion in assets would be exempted from the Volcker Rule, which prohibits federally insured institutions from trading for their own profits and also puts regulatory measures in place to limit their ownership of risky investments.

Although some hurdles still remain, as the House may seek a more expansive rollback of the Dodd-Frank act, the bill is widely expected to become law. Moreover, although the regional banking sector celebrated this event, skeptics have warned of dire consequences in case it becomes law (read: Time for Top Bank ETFs Ahead of Powell's First Fed Meeting?).

Further, driving positive sentiment for the overall financial sector is the current scenario around interest rates. Traders place a 94.4% probability around a rate hike in Jerome Powell’s first FOMC meeting, per the CME Fedwatch tool. Moreover, the debate on if the Fed will go ahead with three rate hikes or four in 2018 is still doing the rounds. Rate hikes are particularly positive for financial stocks, as it leads to an increase in the prime rates, at which banks lend to customers.

Let us now discuss a few ETFs focused on providing exposure to the space.

Financial Select Sector SPDR Fund XLF

This fund seeks to provide exposure to financial stocks in the U.S. equity markets. It has AUM of $33.1 billion and charges a low fee of 13 basis points a year.

From a sector look, the fund has high exposure to Banks, Capital Markets and Insurance sectors, with 44.6%, 20.7% and 17.9% exposure, respectively. The fund’s top three holdings are Berkshire Hathaway (NYSE:BRKa) Inc Class B BRKB, JPMorgan Chase & Co (NYSE:JPM) and Bank of America Corp (NYSE:BAC) with 11.4%, 11.4% and 8.9% allocation, respectively. The fund has returned 20.3% in a year and 3.3% year to date. XLF has a Zacks ETF Rank #1 (Strong Buy), with a Medium risk outlook.

iShares U.S. Financials ETF IYF

This fund seeks to provide exposure to financial stocks. It has AUM of $2.4 billion and charges a moderate fee of 44 basis points a year.

From a sector look, the fund has high exposure to Banks, Diversified Financials and Real Estate, with 33.3%, 27.7% and 17.4% exposure, respectively. The fund’s top three holdings are JPMorgan Chase & Co, Berkshire Hathaway Inc Class B and Bank of America Corp with 7.4%, 7.3% and 5.7% allocation, respectively. The fund has returned 17.2% in a year and 2.1% year to date. IYF has a Zacks ETF Rank #2 (Buy), with a Medium risk outlook.

SPDR S&P Regional Banking (MX:KRE) ETF (CO:KRE)

This fund seeks to provide exposure to regional banking stocks in the U.S. equity markets. It has AUM of $5.4 billion and charges a fee of 35 basis points a year.

The fund’s top three holdings are Texas Capital Bancshares Inc. (NASDAQ:TCBI) , PNC Financial Services Group Inc. (NYSE:PNC) and BB and T Corp (NYSE:BBT) with 1.9% allocation each. The fund has returned 15.1% in a year and 7.8% year to date. KRE has a Zacks ETF Rank #1, with a High risk outlook.

iShares U.S. Regional Banks ETF (LON:IAT)

This fund seeks to provide exposure to regional banking stocks in the U.S. equity markets. It has AUM of $927.8 million and charges a fee of 44 basis points a year.

The fund’s top three holdings are US Bancorp (NYSE:USB) , PNC Financial Services Group Inc and BB And T Corp with 13.6%, 12.4% and 7.0% allocation, respectively. The fund has returned 16.2% in a year and 7.3% year to date. IAT has a Zacks ETF Rank #1, with a High risk outlook.

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