Monday, February 27, 2012

3 Financial Sector ETFs to Consider For Your Portfolio

The bankruptcies that led to the market collapse, which in turn led to bailouts - is known to all investors. Some believe that the sector is on mend but current statistics do not necessarily support this view. While the uncertainty to form a positive resolution to these several pending issues remain a drag on the sector, it is impossible to think of a growing economy without a firm financial sector. For that reason, it is always advised to maintain a decent exposure to the financial sector. In this article we suggest three financial sector exchange-traded funds (ETFs) that you may consider for investment.

PowerShares KBW High Dividend Yield Financial (KBWD) is based on the KBW Financial Sector Dividend Yield Index. Thereby the Fund generally invests at least 90% of its total assets in securities that comprise the Index. These securities are principally engaged in the business of providing financial services and products, including banking, insurance and diversified financial services. The Index is calculated using a divided yield weighted methodology that seeks to reflect the performance of approximately 24 to 40 of such publicly listed financial companies. As of June 11, 2012, the fund holds 36 securities, out of which 34 are from the financial sector, 1 from industrials sector and 1 investment company. The fund allocation is mainly towards small-cap value and mid-cap growth companies making for 59.14% and 32.49% of the fund respectively. In terms of yield, it is quite hard to beat KBWD. Charging 93 basis points a year in fees, it pays out an astounding 10.44% in trailing twelve-month yield, which is by far the highest in the category. However, the fund is mainly focused on U.S. securities and thereby it is not the most diversified from geographic viewpoint.

PowerShares Financial Preferred (PGF) is a fund based on the Wells Fargo Hybrid and Preferred Securities Financial Index (WHPSF Financial Index). The fund generally invests at least 90% of its total assets in preferred securities of the reference Index. As of June 11, 2012, the fund comprises of 50 such preferred securities - mainly large-cap value stocks. In terms of performance, it has a trailing twelve-month yield of 6.96% and has returned 12.00% on YTD basis. Designed to track the performance of American securities, the fund, like KBWD, is non-diversified from a geographic viewpoint. From an individual holding perspective, HSBC Holdings Plc Pfd, Bank of America Corp Pfd and ING Groep NV Pfd are the top three fund holders, combining to make up about 20.86% of the total assets in PGF.

iShares MSCI Emerging Markets Financials Sector Index Fund (EMFN) is based on the MSCI Emerging Market Financials Index. The exchange traded fund generally invests at least 90% of its assets in securities of the Index and in depositary receipts representing securities of the underlying index. As of 6/11/2012, the fund holds 99 securities. Banks, real estate, diversified financials and insurance companies form 73.97%, 8.59%, 8.49% and 7.92% of the fund respectively and thereby are the four main constituents. It charges investors 67 basis points a year for its service and has a noteworthy trailing twelve-month yield of 6.20%. The yield level should pacify those who are put-off by the fund's relatively high volatility and beta value. The fund allocation is mainly a blend of large-cap value and large cap growth securities, and thereby can be more volatile than the traditional financial EFTs. EMFN forms an attractive pick for investors seeking a high yield opportunity with room to grow over the years.

The list does not include the some of the ultra popular financial sector ETFs such as Financial Select Sector SPDR (XLF) or Dow Jones U.S. Financial Services Fund (IYG) or RevenueShares Financials Sector Fund (RWW), as they are still paying out paltry sums compared to ones mentioned above. Our goal is to help investors wade through the many competing ETF offering available and give them a more manageable list of issues from which to choose from. The article, thereby, underlines and presents three financial sector ETFs, those having strong growth prospects, for you to consider.

No comments:

Post a Comment