Which Sector ETF Did Financial Pros Pick?

Markets are flirting with new all-time highs, led by a massive rebound in tech stocks.

Yet, according to our TrackStar data, financial pros are looking elsewhere for value…specifically financials.

The regional banking crisis earlier this year scared a lot of investors away from banks and adjacent stocks.

But as Warren Buffet showed when he scooped up Bank of America shares during the Great Recession, buying a good business at steep discounts can yield tremendous returns.

That’s why we’ll dive into the SPDR Financial Sector ETF XLF, the top search by financial pros amongst the SPDR sector ETFs.

Key Facts About SMH

• Net assets: $31.5 billion
• 12-month trailing yield: 1.85%
• Inception: December 16, 1998
• Expense ratio: 0.10%
• Number of holdings: 75

If you’re looking for exposure to a broad basket of the best financial stocks in the U.S., there’s no better ETF than the XLF.

Comprised of 75 stocks, the XLF tracks the S&P financial index, which includes stocks from financial services, capital markets, insurance, banks, and similar.

Like many S&P 500 indexes, it’s heavily weighted towards the largest companies with the top 10 making up more than half the index weighting.

Source: State Street

The names listed are a veritable who’s who of Wall Street and financial services, from Warren’s Berkshire to JP Morgan and even Visa and Mastercard.

Despite the heavy company weighting, the sector breakouts are a bit more evenly split, as shown below.

Source: State Street

Performance

As you might imagine, financial stocks haven’t performed well in the last year. The regional banking crisis and the increase in interest rates took at toll on most banks and related stocks.

Source: State Street

Banking stocks don’t grow at the insane rates they did before the Great Recession. Yet, they can offer stable investments provided proper risk management and diversification.

Competition

Rather than compare the XLF to other financial ETFs, we wanted to give you a look at the other sector ETFs from SPDR so you can see what they do and how they perform.

• Energy ETF (XLE): The XLE invests in a limited group of companies involved in the exploration, production, transportation, processing, distribution, and marketing of oil and gas products.
• Utilities ETF (XLU): The XLU holds a small basket of utilities, such as electricity, known for low volatility and high dividend payouts.
• Health Care ETF (XLV): The XLV gives shareholders exposure to various healthcare companies from health insurers to drug manufacturers and everything in between.
• Technology ETF (XLK): Not to be confused with the NASDAQ 100 QQQ, the XLK holds a basket of only technology stocks, though the top holdings are similar.

As you might expect, energy and utilities provide the highest dividend yields, while technology eschews them in favor of higher total returns.

Interestingly, the XLU has outperformed energy and financials while coming up just shy of healthcare.

Our Opinion 10/10 

We aren’t ones to shy away from a great deal.

Financial stocks are a steal at these prices. Governments won’t let them go under. So, with that backstop in place, the XLF is a great way to gain exposure without worrying about any one ruining your portfolio.

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