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

Sector ETF report for XLF

By
This story originally appeared on Zacks

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.

- Zacks

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 2, placing it in top 13%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $45.52 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

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 1.51%.

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 12.83% of total assets, followed by Jpmorgan Chase & Co. (JPM) and Bank Of America Corp (BAC).

The top 10 holdings account for about 54.63% of total assets under management.

Performance and Risk

So far this year, XLF return is roughly 39.18%, and it's up approximately 61.46% in the last one year (as of 11/08/2021). During this past 52-week period, the fund has traded between $26.59 and $40.62.

The ETF has a beta of 1.18 and standard deviation of 29.93% 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 $11.70 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.



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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 Global Financials ETF (IXG): ETF Research Reports

 

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