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Should You Invest in the Financial Select Sector SPDR ETF (XLF)?

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·3 min read
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If you're interested in broad exposure to the Financials - Broad segment of the equity market, look no further than the Financial Select Sector SPDR ETF (XLF), 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.

Investor-friendly, sector ETFs provide many options 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 2, placing it in top 13%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $48.02 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 0.12%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.55%.

Sector Exposure and Top Holdings

ETFs offer a 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.

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 11.88% of total assets, followed by Jpmorgan Chase & Co. (JPM) and Bank Of America Corp (BAC).

The top 10 holdings account for about 53.88% of total assets under management.

Performance and Risk

The ETF has added about 3.79% so far this year and was up about 34.76% in the last one year (as of 01/11/2022). In that past 52-week period, it has traded between $28.95 and $41.17.

The ETF has a beta of 1.17 and standard deviation of 29.70% for the trailing three-year period, making it a medium risk choice in the space. With about 68 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 Global Financials ETF (IXG) tracks S&P Global 1200 Financials Sector Index and the Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index. IShares Global Financials ETF has $2.91 billion in assets, Vanguard Financials ETF has $12.10 billion. IXG has an expense ratio of 0.43% 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
 
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 Global Financials ETF (IXG): ETF Research Reports
 
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