Should You Invest in the Financial Select Sector SPDR ETF (XLF)?
Designed to provide broad exposure to the Financials - Broad segment of the equity market, the Financial Select Sector SPDR ETF (XLF) is a passively managed exchange traded fund launched on 12/16/1998.
Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.
Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 15, placing it in bottom 6%.
Index Details
The fund is sponsored by State Street Global Advisors. It has amassed assets over $33.82 billion, making it the largest ETF attempting to match the performance of the Financials - Broad segment of the equity market. XLF seeks to match the performance of the Financial Select Sector Index before fees and expenses.
The Financial Select Sector Index seeks to provide an effective representation of the financial sector of the S&P 500 Index.
Costs
When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.
Annual operating expenses for this ETF are 0.10%, making it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 2.01%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Financials sector--about 100% of the portfolio.
Looking at individual holdings, Berkshire Hathaway Inc Cl B (BRK.B) accounts for about 12.74% of total assets, followed by Jpmorgan Chase + Co (JPM) and Visa Inc Class A Shares.
The top 10 holdings account for about 52.98% of total assets under management.
Performance and Risk
So far this year, XLF return is roughly 0.77%, and is down about -2.69% in the last one year (as of 08/17/2023). During this past 52-week period, the fund has traded between $30.29 and $37.
The ETF has a beta of 1.07 and standard deviation of 21.43% for the trailing three-year period, making it a medium risk choice in the space. With about 75 holdings, it effectively diversifies company-specific risk.
Alternatives
Financial Select Sector SPDR ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, XLF is an outstanding option for investors seeking exposure to the Financials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.
IShares U.S. Financials ETF (IYF) tracks Dow Jones U.S. Financials Index and the Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index. IShares U.S. Financials ETF has $1.84 billion in assets, Vanguard Financials ETF has $8.65 billion. IYF has an expense ratio of 0.39% and VFH charges 0.10%.
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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Financial Select Sector SPDR ETF (XLF): ETF Research Reports
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
Vanguard Financials ETF (VFH): ETF Research Reports
iShares U.S. Financials ETF (IYF): ETF Research Reports
