Best Financial Sector ETFs to Buy Now

Everything you need to know about investing in financials, plus 10 financial sector ETFs to buy now.

Financial services exchange-traded funds (ETFs) offer investors exposure to companies operating in the financial services sector. These funds invest in a wide range of financial services companies, such as banks, insurance companies, asset managers, and other financial institutions. ETFs are investment funds that trade on stock exchanges like individual stocks, but give investors the chance to invest in several companies at once. In this article, we will explore the advantages and risks of investing in financial services ETFs, as well as alternative investment options.

Understanding Financial Services ETFs

The financial services industry is critical for the global economy. Financial institutions provide essential services such as lending, investment management, and insurance, which enable businesses and individuals to access the capital they need to grow and prosper. As such, the financial services industry is a vital component of the global economy and is often closely tied to economic growth. Some popular financial services ETFs include the Financial Select Sector SPDR Fund (XLF) and the Vanguard Financials ETF (VFH).

Best Financial Services ETFs to Buy as of  3/31/23

TheStreet Ratings model ranks the risk-adjusted returns on all ETFs on a monthly basis. These 10 financial services ETFs are currently ranked highest by TheStreet Ratings’ methodology. 

Fund Name, Ticker, Overall Rating, (Risk Grade)

SP Capital Markets ETF  (KCE) – Get Free Report A- (B-)
First Trust Financials AlphaDEX  (FXO) – Get Free Report A- (B-)
iShares MSCI Europ Financials ETF EUFN B+ (C+)
Virtus Private Credit Strategy VPC B+ (C+)
iShares US Brok Dealrs and Sec Ex  (IAI) – Get Free Report B+ (C+)
iShares Global Financials  (IXG) – Get Free Report B (B-)
Davis Select Financial  (DFNL) – Get Free Report B (B-)
Fidelity MSCI Financials Index ETF  (FNCL) – Get Free Report B (B-)
Vanguard Financials ETF  (VFH) – Get Free Report B (B-)
ProShares Ultra Financials  (UYG) – Get Free Report B- (C)

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Advantages of Investing in Financial Services ETFs

One of the primary advantages of financial services ETFs is their diversification. Investing in a single financial services company can be risky, as they are often affected by economic and market factors that are beyond their control. However, by investing in a financial services ETF, investors can spread their risk across multiple companies, reducing their exposure to any single company’s financial performance.

Another advantage of financial services ETFs is the income potential. Many financial services companies pay dividends, which can provide investors with a steady stream of income. Furthermore, as interest rates rise, financial services companies may benefit from increased net interest margins, which could result in higher earnings and potentially higher dividends.

Risks of Investing in Financial Services ETFs

Like any investment, financial services ETFs come with risks. One of the main ones is regulatory risk, as financial services companies are heavily regulated by governments and regulatory bodies. Changes in regulations or increased scrutiny could negatively impact the performance of financial services ETFs.

Another risk of financial services ETFs is concentration risk. Some financial services ETFs may be heavily invested in a particular sub-sector of the financial industry, such as banking or insurance. If that sub-sector experiences a downturn, the ETF’s performance could be negatively impacted. Another risk is the potential for individual company risk. While financial services ETFs offer diversification, they may still be exposed to risks associated with individual companies within the fund.

Alternatives to Investing in Financial Services ETFs

Investors looking for alternatives to financial services ETFs have several options to consider. One alternative is investing in insurance stocks, which can provide exposure to a specific area of the financial services industry. Another option is to invest in capital market stocks, which are companies that provide financial services, such as investment banking, brokerage, and asset management. For investors seeking higher potential returns, emerging market ETFs may be a viable option. Growth income ETFs can also offer exposure to financial services companies with strong growth potential and dividend payments. Lastly, equity income ETFs can provide investors with exposure to companies with a history of paying high dividends.

The Bottom Line

Financial services ETFs provide investors with exposure to a wide range of financial services companies at a low cost. They offer diversification benefits and potential income from dividends. However, financial services ETFs also come with regulatory and economic risks, and investors should carefully consider their investment objectives and risk tolerance before investing in financial services ETFs or any other investment. It is also important to consider alternative investment options to diversify your portfolio and reduce risk.

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