ETFs focusing on financial sector provide coverage for brokerage firms, banks, consumer finance, insurance companies, mutual fund companies and investment trusts. The finance ETFs are currently being provided at four different levels, US/International, global, the main companies in the financial sector and small financial entities like brokerages.
Finance ETFs are also available as specialty ETFs like inverse, leveraged, quant strategy, equal weighted and fundamental index ETF. Investors having experience in the ETF market can leverage from finance ETFs based on the right techniques applied. But it is always feasible to have a diversified portfolio to reduce chances of fewer returns and also help in mitigating financial risk.
The US market ETFs and global financial ETFs are usually recommended by economic experts as balanced finance ETFs Some of the finance ETFs known to investors includes:
The Financial Select Sector SPDR Fund (XLF) tracks the Financial Select Sector Index. It is listed in the NYSE. It has an expense ratio of 0.20% with almost 81 holdings in broad US financial sector.
Global X Brazil Financials ETF (BRAF) tracks the performance of Solactive Brazil Financials Index focusing on the financial sector of Brazil. It has an expense ratio of 0.77% and net asset value of more than $9 million. The ETF has around 25 holdings in Brazil.
Pattern of the Direxion Financial Bear 3X – Triple-Leveraged ETF (FAZ) is designed in such a way that it produce trade outcome which is more or less parallel to triple the inverse of Russell 1000 Financials Index, which follows economic related securities.
The ProShares UltraShort Financials (SKF) follows trade outcome normally equivalent to twice the inverse daily performance of the Dow Jones U.S. Financials Index. It focuses on the US equity market including banks, insurance companies, diversified financial companies, security brokers and dealers. Whereas RWW tracks the RevenueShare Financial Sector Index with holdings of Bank of America, JP Morgan and MetLife.
The finance ETFs will allow to capitalize on the overall profitability of the stock market without having to choose individual stocks but they may not perform as planned. The trading process can be simplified by using these financial sector ETFs which will also minimize the risk of incurring losses.
However as finance ETFs are more concentrated than broad index counterparts they can be volatile and a risky long term investment. They have lower expense ratios than mutual funds and they are focused on a sector gaining popularity at a faster rate.