Should You Invest in the Financial Select Sector SPDR ETF (XLF)?
Launched on 12/16/1998, the Financial Select Sector SPDR ETF (XLF) is a passively managed exchange traded fund designed to provide a broad exposure to the Financials - Broad segment of the equity market.
While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.
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 16, placing it in bottom 0%.
Index Details
The fund is sponsored by State Street Global Advisors. It has amassed assets over $28.98 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 2.18%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. 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. Class B (BRK.B) accounts for about 12.73% of total assets, followed by Jpmorgan Chase & Co. (JPM) and Visa Inc. Class A (V).
The top 10 holdings account for about 53.83% of total assets under management.
Performance and Risk
The ETF has lost about -5.69% and is down about -7.79% so far this year and in the past one year (as of 05/31/2023), respectively. XLF has traded between $30.29 and $37 during this last 52-week period.
The ETF has a beta of 1.07 and standard deviation of 22.91% for the trailing three-year period, making it a medium risk choice in the space. With about 76 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 excellent 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 $1.73 billion in assets, Vanguard Financials ETF has $7.62 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Visa Inc. (V) : 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
