Launched on 12/02/2010, the Invesco KBW High Dividend Yield Financial ETF (KBWD) is a smart beta exchange traded fund offering broad exposure to the Financials ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
KBWD is managed by Invesco, and this fund has amassed over $348.16 million, which makes it one of the average sized ETFs in the Financials ETFs. KBWD, before fees and expenses, seeks to match the performance of the KBW Nasdaq Financial Sector Dividend Yield Index.
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
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 2.59% for this ETF, which makes it one of the most expensive products in the space.
The fund has a 12-month trailing dividend yield of 11.80%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 98.70% of the portfolio, the fund has heaviest allocation to the Financials sector.
When you look at individual holdings, Armour Residential Reit Inc (ARR) accounts for about 4.94% of the fund's total assets, followed by Annaly Capital Management Inc (NLY) and Fs Kkr Capital Corp (FSK).
Its top 10 holdings account for approximately 37.88% of KBWD's total assets under management.
Performance and Risk
The ETF has lost about -25.39% so far this year and is down about -23.81% in the last one year (as of 10/04/2022). In the past 52-week period, it has traded between $13.86 and $21.54.
The fund has a beta of 1.31 and standard deviation of 34.22% for the trailing three-year period, which makes KBWD a medium risk choice in this particular space. With about 40 holdings, it has more concentrated exposure than peers.
Invesco KBW High Dividend Yield Financial ETF is a reasonable option for investors seeking to outperform the Financials ETFs segment of the market. However, there are other ETFs in the space which investors could 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 $8.16 billion in assets, Financial Select Sector SPDR ETF has $28.04 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.
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
Vanguard Financials ETF (VFH): ETF Research Reports
FS KKR Capital Corp. (FSK) : Free Stock Analysis Report
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