Take advantage of cyclical economic growth through financial stocks.
While some investors are enamored with digital currencies and blockchain technology, many others are more comfortable relying on proven names in the financial industry. These mega-banks and investment giants have hundreds of billions of dollars in assets, established dividends, and a dominant position at the top of the global economy. And while Bitcoin, Ethereum and others seem to dominate the headlines, the old guard of the financial sector continues to do well as the United States sees spending spikes and stabilization after the worst of the COVID-19 pandemic. ‘last year. If you are interested in financial stocks as an economic growth game, consider one of these leading exchange traded funds as an easy way to gain exposure to the sector.
Financial Select Sector SPDR Fund (symbol: XLF)
A leader in the AUM sector with $ 41 billion, XLF is the financial ETF of choice for investors looking to play the biggest names in the banking and investment management arena in the United States. Holding 65 industry-leading stocks, including Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) and mega-bank JPMorgan Chase & Co. (JPM), this fund is well exposed to large companies on Wall Street. And with gains of over 50% over the past 12 months, XLF has significantly outperformed the rest of the stock market lately, showing why this sector and this fund is worth checking out.
Vanguard Financials ETFs (VFH)
Another big-name ETF in the financial industry, this Vanguard fund has over $ 10 billion in assets. The major holdings are similar to XLF, but where these major financial funds diverge is in the completeness of their portfolios. VFH has many more stocks in total, with almost 400 holdings making up this fund. The fund has a strong focus on top mega-banks, with 41% of total assets in the top 10 holdings, but small insurance companies and regional banks are emerging to complete a fairly comprehensive overview of the U.S. financial sector in a. only fund.
SPDR S&P Regional Bank ETF (KRE)
If you want to look beyond the stocks of big names like JPM and Berkshire, the approximately $ 5 billion S&P Regional Banking SPDR ETF is a good alternative. As its name suggests, it eliminates the large diversified financial companies and is instead limited to regional players. Some are still sizeable, mind you, with $ 27 billion Fifth Third Bancorp (FITB) and $ 20 billion KeyCorp (KEY) at the top of the portfolio. However, even though these businesses may be larger than community banks with a handful of branches, they are still characterized by ‘meat and potato’ financial transactions like mortgages, small business loans, and services. personal banking. This more targeted approach is attractive to investors who do not want to expose themselves to the risks or complications caused by the sophisticated investment operations of US mega-banks.
IShares Global Financials ETF (IXG)
Overseas, iShares’ $ 3 billion IXG fund enables a different kind of diversification by overlapping with large multinational financial firms. These are around 200 traditional banks, investment funds and insurance companies. You get Berkshire and JPM in the lead again, but with lower weightings than other big players like the Royal Bank of Canada (RY), Commonwealth Bank of Australia (CBA.AX) and AIA Group Ltd. of Hong Kong (1299.HK). ) are also in the top 10. This global-focused financial ETF has slightly underperformed some of its US-focused peers, but with returns above 40% over the past 12 months it has consistently beaten the S&P 500 at large – and in theory, it’s better prepared to weather a downturn thanks to its diversified portfolio.
IShares US Financial Services ETF (IYG)
Taking a different approach than other funds on this list, IYG is focusing only on financial services companies – removing ancillary players like insurance companies and other stocks that don’t immediately call themselves “financial industry”. Think investment banking giants Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS), and credit card giants Visa Inc. (V) and American Express Co. (AXP). You’ll always find choices like Citigroup Inc. (C) and Bank of America Corp. (BAC) in this focused portfolio of only around 100 stocks, and almost all of them will be instantly recognizable as major US financial brands.
Invesco KBW Bank ETF (KBWB)
Based on the idea of eliminating auxiliary players from the sector, this Invesco fund is dedicated solely to banking stocks. That is, companies mainly engaged in traditional operations of the financial sector. The targeted list of just under 30 stocks includes mega-banks of Citi, BofA, JPM and Wells Fargo & Co. (WFC), as well as larger regional players like Fifth Third and PNC Financial Services Group (PNC). Collectively, they’re a big part of retail banking in the United States, so if you really want an ETF to tap into cyclical financial activities like consumer and business lending, this is the most straightforward way. to do. And with stocks rising roughly 70% in the past 12 months, this modest $ 2 billion ETF is clearly worth a visit despite its smaller footprint.
ETF Ark Fintech Innovation (ARKF)
Investors may already be familiar with Cathie Wood’s Ark Invest family of ETFs, which have quickly grown in popularity, with tactical funds that provide targeted exposure to disruptive technology and growth areas. ARKF is the investment manager’s fintech offering, launched in early 2019 and providing exposure to companies in mobile payments, digital wallets and blockchain technology. It is an actively managed fund, and therefore the most expensive on the list with an annual fee of 0.75%. But it’s popular for a reason, with a portfolio of around 40 dynamic fintech companies, both foreign and domestic, which currently includes mobile payment company Square Inc. (SQ), Canadian e-commerce giant Shopify Inc. (SHOP) and fast- growing financial technology company Sea Ltd. (SE) based in Singapore. ARKF may be the most volatile offering on this list, but it may also offer the greatest potential for growth as the FinTech industry takes off.
Best financial ETFs to buy:
– SPDR Fund for the Selected Financial Sector (XLF)
– Vanguard Financials ETF (VFH)
– SPDR S&P Regional Bank ETF (KRE)
– iShares Global Financials ETF (IXG)
– iShares US Financial Services ETF (IYG)
– Invesco KBW Bank ETF (KBWB)
– Ark Fintech Innovation ETF (ARKF)