Best financial ETFs to invest

Exchange-traded funds (ETFs) are an alternative for investing in a sector as specifics as the financial industry and thus capturing its future evolution.

It is worth noting that the financial sector is broad. It is composed of banks, general insurance companies, life insurance companies, brokers, credit companies, fund managers and investment services companies in general. Each of these class of financial companies, despite having in common a sensitivity to certain economic factors, such as interest rates, also presents differences. For example, the risk of a commercial bank is not the same as that of an investment bank, nor is the financial leverage used.

For this reason, having exposure to different companies in this sector can be interesting within some investment strategy, and you can use the best financial ETFs facilitate this task.

Composition of the Financial Sector

As I mentioned earlier, the financial sector includes different types of companies in different industries. Mainly, banks of different types, insurers of different classes, brokers, and other financial services.

The image below shows the industries and sub-industries in which this sector is divided.

banking etf

The following image shows us the evolution of the weights that each industry has had over the years. The most important change happened in 2016, when the Real Estate industry left the Financial Sector to create a sector, where Real Estate Investment Trusts (REITs) now belong.

Another important change is that the weight of banks, which includes diversified ones like J.P. Morgan and regional ones like the late Silicon Valley Bank, has more than doubled in the last decade.

best financial etf

Another interesting aspect is the exposure the financial sector has to the value and growth factor. We can see this in the following graph:

best financial sector etf

The Value factor or low multiples is the one with the greatest dominance in the three capitalization ranges. That is why using the Price Earning Ratio (PER) and the Price-Book Value ratio (PBV) serves well for a quick analysis within this sector in most cases.

Best financial ETFs to invest

We have curated ETFs that have exposure to the financial sector from different geographical areas and that have had the best accumulated returns in the last 3 years.

Since some ETFs follow the same index, we only select one ETF per index and it is those that had the best return in 3 years per each index.

ETFTickerTER3a%ISIN
Lyxor EURO STOXX Banks (DR) UCITS ETF – AccLYBK0.398.13LU1829219390
Xtrackers MSCI Europe Financials ESG Screened UCITS ETF 1CXS7R0.274.46LU0292103651
SPDR MSCI Europe Financials UCITS ETFSPYZ0.1864.87IE00BKWQ0G16
Lyxor MSCI World Financials TR UCITS ETF – Acc (EUR)LYPD0.352.35LU0533032859
iShares S&P 500 Financials Sector UCITS ETF (Acc)QDVH0.1549.12IE00B4JNQZ49

Lyxor EURO STOXX Banks (DR) UCITS ETF – Acc

The ETF replicates the EURO STOXX® Banks index which is composed of the banking sector of the Eurozone. It has a full physical replication and its base currency is EUR. It does not have currency coverage.

It is domiciled in Luxembourg and its dividend policy is accumulation. Its annual volatility is 28.54%.

The following graph shows its distribution by country:

bank etf

And these are the main ETF positions:

banks etf

Xtrackers MSCI Europe Financials ESG Screened UCITS ETF 1C

This ETF replicates the MSCI Europe Financials ESG Screened 20-35 index which has in its portfolio companies from the financial sector of large and medium capitalization and filters them using ESG criteria. The weight of the share of the highest capitalization is capped at 35% and the rest of the components at 20%.

It follows a full physical replication and its base currency is EUR and it does not have currency coverage. It is domiciled in Luxembourg and has an accumulation dividend policy. Its annual volatility is 19.87%

The following image breaks down the portfolio by the first positions, countries and industries that make it up.

vanguard financial etf

Lyxor MSCI World Financials TR UCITS ETF – Acc

The ETF seeks to follow the MSCI World Financials index which has in its portfolio stocks from the financial sector of developed markets.

It has a synthetic replication and its base currency is EUR. It does not have currency coverage. It is domiciled in Luxembourg and its dividend policy is accumulation. Its annual volatility is 16.44%

The following is its distribution by countries:

bank stock etf

And these are its main positions:

bank etf stock

Conclusion

There are different market indices that are related to the financial sector, both geographically and by types of company or industry within the same sector. Therefore, we must observe which index fits our needs and from there select the one with the least Tracking Error, along with the lowest possible commissions.

In any case, given its liquidity and diversification, ETFs are a good tool to invest in the sector.

Diversify your portfolio with:

FAQs about the ETFs in the Financial Sector

Is Financial ETF a Good Investment?

ETFs are considered to be low-risk investments because they are low-cost act as a basket of stocks or other securities, increasing diversification. For most individual investors, ETFs represent an ideal type of asset with which to build a diversified portfolio.

Can I buy ETFs through Bank?

No. To buy, sell, and hold ETFs, you need a broker account. With the broker account, you have access to the ETF pool and you can select your choice.

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