Financial Sector Index Fund

Financial Sector Index Fund – The Financial Select Sector SPDR® Fund (XLF) is the oldest financial sector ETF. The first time was December 16, 1998. The Great Financial Crisis of 2007-2009 devastated this market sector. The financial sector was the hardest hit, with related ETFs failing to match the returns of the broader US market or other market sectors. Therefore, it will be difficult for investors to find a “good” financial ETF with a history of great returns. Because of this, you’ll see in the chart below that the XLF ETF lags the S&P 500 significantly.

Morningstar lists 32 ETFs in the Financials category. Half of these ETFs have been around for 10 years or more. I compared the performance of each of these legacy ETFs using Portfolio Visualizer and Koyfin’s backtesting tools. I did not take into account prices, quality of ownership, or other metrics when making these rankings.

Financial Sector Index Fund

Financial Sector Index Fund

The 4 best performing ETFs in the financial sector were KIE, FXO, RYF and IAI. The following charts show how these 4 ETFs compare to each other and to the S&P 500 over the past 11½ years.

Financial Stability Review, May 2019

To better understand how these 4 top financial sector ETFs are structured, let’s take a look at their stated objectives and product summaries.

The KIE – SPDR® S&P® Insurance ETF seeks to generate investment results that generally correspond to the total return performance of the S&P® Insurance Select Industry Index (the “Index”) before fees and expenses. S&P TMI’s Insurance segment, which consists of insurance brokers, life and health insurance, multiline insurance, property and casualty insurance, and reinsurance subsectors, is exposed to risk. It seeks to track a modified equal-weighted index that allows for decentralized sector exposure to large, mid-cap and small-cap stocks. Allows investors to take strategic or tactical positions at a more targeted level than traditional sector-based investments.

FXO – First Trust Financial AlphaDEX® Fund is an Exchange Traded Fund. The Fund’s investment objective is to seek investment results that generally correspond to the price and yield before fees and expenses of the StrataQuant® Financials Index, an equity index. The StrataQuant® Financials Index is an “optimized” index developed, maintained and sponsored by ICE Data Index, LLC or its affiliates (“IDI”) that selects stocks from the Russell 1000® Index using AlphaDEX®. Uses stock selection methodology. IDI produces the StrataQuant® Financials Index by ranking Russell 1000® Index member stocks by three-, six- and 12-month price growth, price-to-sales growth, one-year sales growth, and individual value indices. Is. Factors like book value, cash flow, cost and return on assets. Russell derives its score using growth or value factors only on stocks classified as growth or value. Stocks that Russell allocates between growth and value score best between the growth and value factors. IDI then ranks the stocks in the financial sector based on the score. The bottom 25% is removed and the top 75% is selected for the StrataQuant® Financials Index. The selected stocks are divided into quintiles based on their ranking, with higher-ranked stocks receiving more weight in the index. Shares in each quintile are equally weighted. The index is updated and rebalanced every quarter.

RYF – Invesco S&P 500® Equal Weight Financials ETF (the Fund) is based on the S&P 500® Equal Weight Financials Index (the Index). The Fund will invest at least 90% of its total assets in the common stocks that make up the index. The index is weighted equal to the financial sector stocks of the S&P 500® Index. Funds and indexes are rebalanced quarterly.

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IAI – iShares US Broker-Dealer and Exchange-Traded ETF seeks to track the investment performance of an index composed of US stocks in the investment services industry. Exposure to US investment banks, discount brokers and stock exchanges. Home investment services share a goal. Use to express industry opinion.

I have been reluctant to try to rank financial sector ETFs due to poor results in the past, and I knew I wouldn’t invest in any of these ETFs. But I’ve been asked by several readers which financial sector ETFs I recommend. Therefore, even if I do not invest in the industry, I can release the data. I invest in 31 different ETFs, giving me exposure to most of the world’s publicly traded companies. The ETFs I invest in have lower returns than the S&P 500, but there are other compelling reasons to own them. For example, I have 2 emerging markets ETFs that have significantly underperformed the S&P 500 since inception. However, there is some impressive data from the ETF industry showing that older, emerging markets are outperforming the S&P 500 over the long term. I don’t have any data to show that the financial sector is outperforming the broader market. In fact, it can be assumed that the financial sector may deviate from the performance of broad market ETFs. For those who want exposure to the financial sector but don’t want to own a financial sector fund, you’ll find ample exposure to the sector through our broad market ETFs. For example, a typical S&P 500 fund like SPY has 13% of its financial portfolio. A mid-cap blended fund like MDY has 16% in finance. A typical small cap blend fund like IWM has an 18% exposure to financials. For these reasons, this Deep Value ETF aggregator does not invest in any financial sector ETFs.

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Financial Sector Index Fund

Disclaimer: I am not a professional investment advisor. Before investing in any of the funds mentioned in this article, please do your own research or seek the assistance of a registered investment advisor. “Expert verified” means that the article has been carefully reviewed for accuracy and clarity by our Financial Review Board. Our review board is made up of financial experts and we aim to ensure that our content is always objective and balanced.

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Written by: James Royal Written by: James Royal Arrow Correct spelling. James F. Royle, Ph.D., senior correspondent for Investments and Wealth Management, covers investments and wealth management. His work has been cited by CNBC, The Washington Post, The New York Times and other publications. Connect with James Royal on Twitter Connect with James Royal on Twitter Connect with James Royal on LinkedIn Connect with James Royal on LinkedIn by email

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Financial Sector Index Fund

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