Is Invesco KBW High Dividend Yield Financial ETF (KBWD) a Strong ETF Right Now?
The Invesco KBW High Dividend Yield Financial ETF (KBWD) was launched on 12/02/2010, and is a smart beta exchange traded fund designed to offer broad exposure to the Financials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by Invesco. KBWD has been able to amass assets over $371.06 million, making it one of the average sized ETFs in the Financials ETFs. KBWD seeks to match the performance of the KBW Nasdaq Financial Sector Dividend Yield Index before fees and expenses.
The KBW Nasdaq Financial Sector Dividend Yield Index is a dividend yield weighted index seeking to reflect the performance of approximately 24 to 40 publicly listed financial companies engaged in the business of providing financial services and products, including banking, insurance and diversified financial services, in the US.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
With one of the most expensive products in the space, this ETF has annual operating expenses of 3.84%.
The fund has a 12-month trailing dividend yield of 11.57%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
KBWD's heaviest allocation is in the Financials sector, which is about 100% of the portfolio.
Looking at individual holdings, Armour Residential Reit Inc (ARR) accounts for about 4.50% of total assets, followed by Annaly Capital Management Inc (NLY) and Orchid Island Capital Inc (ORC).
KBWD's top 10 holdings account for about 37.9% of its total assets under management.
Performance and Risk
So far this year, KBWD has added about 11.44%, and is down about -5.62% in the last one year (as of 08/18/2023). During this past 52-week period, the fund has traded between $13.63 and $18.10.
The ETF has a beta of 1.41 and standard deviation of 21.61% for the trailing three-year period, making it a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.
Alternatives
Invesco KBW High Dividend Yield Financial ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $8.60 billion in assets, Financial Select Sector SPDR ETF has $33.66 billion. VFH has an expense ratio of 0.10% and XLF charges 0.10%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Invesco KBW High Dividend Yield Financial ETF (KBWD): ETF Research Reports
ARMOUR Residential REIT, Inc. (ARR) : Free Stock Analysis Report
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
Annaly Capital Management Inc (NLY) : Free Stock Analysis Report
Orchid Island Capital, Inc. (ORC) : Free Stock Analysis Report
Vanguard Financials ETF (VFH): ETF Research Reports
