Best financial ETFs: Top funds for banks, insurers and REITs - Bankrate.com

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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial decisions with confidence.
Our articles, interactive tools, and hypothetical examples contain information to help you conduct research but are not intended to serve as investment advice, and we cannot guarantee that this information is applicable or accurate to your personal circumstances. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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If you’re wondering how to invest in the financial sector, exchange traded funds (ETFs) can be a simple way to get started. ETFs that focus on the financial sector invest in companies that are involved in different areas of finance such as banking, insurance, real estate and investment management. You can choose a broad financial ETF that invests in all these areas, or you can choose to invest more narrowly in one of the sub-sectors. By using an ETF, you can invest in a basket of companies without having too much exposure to one individual stock.
The Federal Reserve is poised to hike interest rates this year as it looks to pull back on financial stimulus and get a handle on high inflation. The financial sector could benefit from higher interest rates as banks earn a larger spread on what they pay to depositors and what they earn in loans. Insurers and investment managers could also benefit as their investments yield higher returns. However, income-based investments such as real estate investment trusts (REITs) could struggle in a higher-rate environment as investors demand higher yields to compensate them for risk.
Some financial sector ETFs may prove to be attractive investments in the coming years if interest rates indeed march upward.
Though the financial sector may seem homogenous, there are several different businesses that fall within the financial label. You can invest in a broad financial ETF or choose to focus on one of its sub-sectors.
Before purchasing an ETF, it’s useful to know some key information about the fund. Here are some areas to pay close attention to.
Here are some of the best financial ETFs investors should consider.
This fund seeks to achieve investment performance that tracks the Financial Select Sector Index, which aims to provide an effective representation of the financial sector of the S&P 500. The ETF holds companies involved in a variety of financial activities including banking, insurance, REITs and capital markets.
5-year returns (annualized): 12.7 percent (as of Feb. 16, 2022)
Expense ratio: 0.10 percent
Dividend yield: 1.6 percent
This ETF invests based on the KBW Nasdaq Bank Index and typically allocates at least 90 percent of its assets in securities that make up the index. Holdings include large money-center banks, such as Wells Fargo and Bank of America, as well as regional banks and thrift institutions.
5-year returns (annualized): 10.8 percent (as of Feb. 16, 2022)
Expense ratio: 0.35 percent
Dividend yield: 2.1 percent
This fund seeks to track the investment performance of the Dow Jones US Select Insurance Index. The insurers are involved in life, property and casualty and full-line insurance. Major holdings include Chubb, Progressive and American International Group.
5-year returns (annualized): 9.8 percent (as of Feb. 16, 2022)
Expense ratio: 0.42 percent
Dividend yield: 2.2 percent
This ETF aims to track the performance of the S&P Capital Markets Select Industry Index. Companies in the index are involved in industries such as asset management and custody, financial exchanges, as well as investment banking and brokerages. The ETF’s major holdings include Virtu Financial, Charles Schwab and Bank of New York Mellon.
5-year returns (annualized): 17.8 percent (as of Feb. 16, 2022)
Expense ratio: 0.35 percent
Dividend yield: 1.7 percent
This fund aims to track the return of the MSCI US Investable Market Real Estate 25/50 Index. The fund invests in REITs and companies involved in the purchase of commercial real estate, hotels and other real property. Top holdings include Prologis, American Tower and Simon Property Group.
5-year returns (annualized): 8.5 percent (as of Feb. 16, 2022)
Expense ratio: 0.12 percent
Dividend yield: 2.8 percent
If you’re looking for an easy way to invest in the financial sector, ETFs provide a simple option to achieve that. You can choose a broad financial sector ETF or narrow your approach and invest in ETFs that track specific sub-sectors. Make sure you understand how each sub-sector is impacted by different economic conditions and pay close attention to the ETFs expense ratio. If you’re just starting out, a broadly diversified fund based on indexes such as the S&P 500 might be a better fit.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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