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.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 3, placing it in top 19%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $32.08 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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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 1.99%.

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.

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 14.19% of total assets, followed by Jpmorgan Chase & Co. (JPM) and Bank Of America Corp (BAC).

The top 10 holdings account for about 51.78% of total assets under management.

Performance and Risk

So far this year, XLF has lost about -15.06%, and is down about -9.73% in the last one year (as of 09/20/2022). During this past 52-week period, the fund has traded between $30.74 and $41.42.

The ETF has a beta of 1.09 and standard deviation of 30.97% for the trailing three-year period, making it a medium risk choice in the space. With about 69 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 $1.99 billion in assets, Vanguard Financials ETF has $8.79 billion. IYF has an expense ratio of 0.41% 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
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
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
 
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