Best Financial ETFs for 2024
Financial ETFs allow investors to gain exposure to the banking and insurance sector. What exactly these investment products are is explained in this article, along with some of the pros and cons of investing in them. A list of some financial ETFs to watch is also provided.
Table of Contents
What are Financial ETFs?
Financial ETFs are Exchange-Traded Funds focusing mainly on an economy's financial sector. The financial sector includes firms that provide financial services to professional customers, like a bank providing a loan to a company, or retail customers, like banks that provide mortgages.
Generally, the financial sector is seen as one of the benchmarks that signify the health of an economy, as banks are responsible for the money management and provision of capital within that economy. Banks are not the only companies that make up the financial sector.
Another major part of this sector is insurers, who provide financial compensation to customers in case of unexpected losses. Thanks to insurers, retail customers and businesses can guard themselves against certain risks like destruction by fire, natural disasters, or theft.
An Exchange-Traded Fund is an investable asset that allows investors to buy a collection of different stocks simultaneously. By buying an ETF, the investor can gain exposure to the performance of a proportional share of all of the stocks and assets the fund holds.
Best Financial ETFs to Watch
It is important to note that what the ‘best’ financial ETFs are is a subjective question, the answer to which depends on many different factors like an investor’s financial goals and situation. Therefore, this list of financial ETFs is best used as a starting point for investors performing the necessary research before making any investment decisions.
- iShares S&P 500 Financials Sector ETF – Large and Mid-Cap Financial Services Stocks from the S&P 500
- Xtrackers MSCI USA Financials ETF – Index Tracker of Large and Mid-Cap Financial Services Stocks from the USA
- Lyxor STOXX Europe 600 Financial Services ETF – Financial Services Stocks from the STOXX 600
- Financial Select Sector SPDR Fund ETF – Exposure to Financial Services Stocks from the USA as well as REITs
- iShares MSCI Europe Financials ETF – Focus on Large and Mid-Cap Leading European Financial Services Companies
iShares S&P 500 Financials Sector ETF
The iShares S&P 500 Financials Sector ETF aims to invest in American financial companies from the S&P 500 index. This index tracks 500 of the largest companies in the United States, listed on the New York Stock Exchange.
The top equities held by the iShares S&P 500 Financials Sector ETF are in order of allocation weight: Berkshire Hathaway Inc Class B (~12.7%), JPMorgan Chase & Co (~9.5%), Visa Inc Class A (~8%), Mastercard Inc Class A (~6.7%), Bank of America Corp (~4.5%), Wells Fargo (~3.4%), S&P Global Inc (~2.7%), Goldman Sachs Group Inc (~2.4%), Morgan Stanley (~2.2%), and BlackRock Inc (~2.1%).
The top sector the iShares S&P 500 Financials Sector ETF invests in is finance, and the main sub-sectors are diversified banks (~22%), transaction and payment processing services (~20%), and multi-sector holdings (~13%). Several other sectors are covered, including financial exchange and data (~9%) and investment banking and brokerage (~7%).
Xtrackers MSCI USA Financials ETF
The Xtrackers MSCI USA Financials ETF invests in large and mid-cap companies from the USA’s financials sector as classified by GICS, the Global Industry Classification Standard. This financial ETF covers about 90 different equities.
The top equities the Xtrackers MSCI USA Financials ETF invests into are JPMorgan Chase (~9.3%), Berkshire Hathaway Class B (~8.9%), Visa Incorporation (~7.8%), Mastercard (~6.6%), Bank of America Co (~4.5%), Wells Fargo (~3.4%), S&P Global Inc (~2.6%), The Goldman Sachs Group (~2.4%), BlackRock (~2.2%), American Express (~2.2%), Morgan Stanley (~2.1%), Citigroup (~1.9%), Charles Schwab (~1.9%), Progressive (~1.8%), and Marsh and McLennan (~1.8%).
The sector covered by the Xtrackers MSCI USA Financials ETF is financials, with the main subsectors being diversified banks (~21%), multi-sector holdings (~10%), financial exchanges & data (~9%), and asset management & custody banks (~8%), among others.
Lyxor STOXX Europe 600 Financial Services ETF
The Lyxor STOXX Europe 600 Financial Services ETF tracks the STOXX Europe 600 Financial Services index, which consists of Europe's largest financial services stocks.
The top 10 equities in the Lyxor STOXX Europe 600 Financial Services ETF are UBS Group Ag (~21.8%), London Stock Exchange Group (~12.4%), Investor AB-B SHS (~10%), Deutsche Boerse Ag (~9.2%), Partners Group Ag (~7.5%), 3I Group PLC (~6.9%), EQT AB (~4.8%), Julius Baer Group LTD (~2.8%), Exor NV (~2.2%), and Euronext NV Paris (~1.7%).
The sector breakdown of the Lyxor STOXX Europe 600 Financial Services ETF is 100% financials.
Financial Select Sector SPDR Fund ETF
The Financial Select Sector SPDR Fund ETF seeks to track a number of different financial companies within the S&P 500 index, thereby providing representation of the financial sector within the American economy. This financial ETF covers financial services, insurance, capital markets, and Real Estate Investment Trusts (REITs), among other things.
The largest equity positions held by the Financial Select Sector SPDR Fund ETF are Berkshire Hathaway Inc Class B (~12.7%), JPMorgan Chase & Co (~9.5%), Visa Inc Class A (~8%), Mastercard Inc (~6.7%), Bank of America Corp (~4.5%), Wells Fargo & Co (3.4%), S&P Global Inc (~2.7%), Goldman Sachs Group Inc (2.4%), Morgan Stanley (~2.2%), and BlackRock Inc (~2.1%).
The main economic sector covered by the Financial Select Sector SPDR Fund ETF is financials, with the subsectors being financial services (~32%), banks (~25%), capital markets (~22%), and insurance (~16%). Consumer finance makes up the last 4%.
With Admiral Markets, you can trade the Financial Select Sector SPDR Fund ETF CFD. CFDs, or contracts for difference, are derivative contracts that track the underlying price of an asset. This enables investors to trade long and short using leverage. Learn more in The CFD Trading Guide.
iShares MSCI Europe Financials ETF
The iShares MSCI Europe Financials ETF gives investors exposure to European financial equities. It covers large as well as medium capitalisation companies from developed European economies. The economic sector covered by the iShares MSCI Europe Financials ETFs is financials.
The largest equity positions within the iShares MSCI Europe Financials ETF are HSBC Holdings PLC (~8.2%), Allianz (~5.7%), UBS Group Ag (~5.2%), Zurich Insurance Group Ag (~4%), BNP Paribas SA (~3.8%), Banco Santander SA (~3.6%), Axa SA (~3.1%), Muenchener Rueckversicherings-Gese (~3%), Banco Bilbao Vizcaya Argentaria SA (~2.9%), and ING Groep NV (~2.8%).
With Admiral Markets, you can trade the iShares MSCI Europe Financials ETF CFD.
How to Invest in Financial ETFs
With Admiral Markets, you can invest in real stocks and ETFs, as well as trade CFDs on stocks and ETFs, with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- France/Germany stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission.
You can learn more about trading and investing commissions on the Admiral Markets Contract Specification page. You can search for global stocks and ETFs from the MT5 web platform and invest in four steps:
- Open an account with Admiral Markets.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Conclusion: Pros & Cons of Financial ETFs
An upside of investing in the financial sector with financial ETFs is that this sector is highly regulated. Companies must abide by the stringent rules that apply to banks, such as minimum capital levels and stress testing, to guard against insolvency.
Another upside of financial ETFs is that many financial institutions pay steady dividends. This means including a financial ETF in a portfolio can allow investors to generate a stable income stream from their capital.
As a downside, the financial sector, including banks, often faces significant challenges during economic downturns. This is primarily due to its close connection to the economy through capital provision and the utilization of leverage, involving investing with borrowed funds that can result in heightened returns and losses. Highly leveraged banks are susceptible to insolvency with even a minor decline in the net value of their assets. Financial companies and banks are commonly labelled as 'cyclical,' reflecting their performance fluctuations in tandem with natural economic cycles.
Another downside of investing in financial ETFs is interest rate risk. One avenue of income for financial institutions is to provide capital to borrowers and receive interest payments in return. When interest rates fall, the interest rates banks and financial institutions charge can also fall in tandem, leading to lower profits. Conversely, higher interest rates boost bank profitability, but rapid increases can deter consumers from getting mortgages and other loans, reducing capital demand and lowering revenues.
All type of investing involves risk and you should consider your circumstances carefully before allocating capital to your investment portfolio. Thorough research and risk management are key elements of investing.
Continue Reading:
- Best NASDAQ ETF
- Best S&P 500 ETF
- Best Bank ETF
- Best Energy ETF
- Best Vanguard ETFs
- Best Emerging Market Fund ETF
- What Are ETFs? ETFs Explained
- How to Trade ETFs with €1000
- The CFD Trading Guide
FAQs on Best Financial ETFs
What is the largest financial ETF?
The Financial Select Sector SPDR ETF is the largest ETF focusing on the financial sector. It currently has around $31 billion in assets under management. Its investment objective is to invest in companies belonging to the financial sector in the S&P 500 index.
Is a financial ETF a good investment?
Whether a financial ETF is a good investment or not depends on an investor’s personal situation and financial goals. A factor to consider when buying a financial ETF is the cyclical nature of financial firms such as banks, whose performance tends to rise and fall in accordance with economic cycles.
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