With so many positive tailwinds for the financial sector, how can investors use ETFs to target this growth?
Financials ETF breakdown
In today’s market, there are 33 Financial Focused ETFs with about $50 Billion in assets that investors can pick and choose from. Breaking this down further, we see that there are a range of ETFs out there from broad based to banks and all the way to Insurance ETFs, there are a variety of options out there suitable to all different types of investors. Continuing with the variety, we can see that there are many different types of ETFs that are domestic and, in that, spanning from small value/blend to large value/blend.
The bulk of the assets are in broad based indexes, which isn’t surprising but probably not the best way to capture future growth. There is only 1 ETF for these three categories: smallcaps, mid caps and active, with small caps being the largest by assets. There are 7 smart beta Financial ETFs with about 3.7% of the market share but interesting the 18 Finacial Sub-sector ETFs represent about 25% of assets.
Banking and Insurance represent over 90% of the assets, while the income producing BDCs come in a distant third. Rounded out by more growth oriented subsectors like capital markets, private equity and the new comer the ETF of the ETF industry.
With many types of ETFs out there, it can sometimes be hard to stand out in the increasingly saturated market. That was the case, at least, until the launch of the Toroso ETF Industry Index and TETF.
If the Federal Reserve keeps hiking interest rates, the financial sector (XLF)(IYF) will most likely benefit. Along with an improving economy and fewer regulations, such a victory would augur well for the financial sector.
Despite rising rates, the residential mortgage business may flourish. Housing starts are likely to improve as demand remains robust. Non-bank lenders may throw their hats in the ring in that case. Job growth remains strong. The US economy created 222,000 jobs in June. This growth bodes well for banks (KRE)(KBE).
With so many tailwinds for the financial sector, investors have a plethora of financials-focused ETFs to choose from, as discussed above.