The activities in the financial market are ever-expanding owing to the evolving demands of the consumers, both individuals and organizations. Also, the rising adoption of digital technologies, easier access to loans, and alternate investment availability is transforming the market functions and operations.

Given the backdrop, let’s look at the best-performing financial equities ETFs iShares U.S. Financial Services ETF (IYG), Vanguard Financials Index Fund ETF Shares (VFH), and The Financial Select Sector SPDR Fund (XLF) for a balanced and diversified portfolio.

With expanding economic activities, speedy loan requests approvals, wider accessibility of different loans, the consumer finance market is on the rise. The global consumer finance market is projected to grow at a CAGR of 7.1%, resulting in a market volume of $196 trillion by 2029 driven by increasing access to loans and credits through digital payment platforms offering lucrative growth opportunities.

Further, the rapidly improving user experiences with personalized services propel the financial services market poised to grow to $44.93 trillion by 2028, at a CAGR of 7.6%. During the forecast period, the market growth is attributable to factors including, surging alternative investment demand, increased use of blockchain, and rising number of individual investors.

Moreover, after the uncertain turns of events and high volatility in the last year, financial ETFs are on rebound this year with decent global growth, easing U.S. inflation and possibilities of a Fed rate cut. Also, favorable earnings reports of banking giants and currently undervalued financial stocks open more opportunities.

Given these encouraging trends, let’s look at the fundamentals of the top three Financial Equities ETFs, beginning with number 3.

ETF #3: iShares U.S. Financial Services ETF (IYG)

IYG invests in a market-cap-weighted segment of US stocks consisting only of financial service firms including many of the country’s largest banks, real estate and general finance firms. The fund allows exclusive exposure to the financial services segment. The funds tracks the Dow Jones U.S. Financial Services Index.

The fund has assets under management (AUM) of $1.42 billion. IYG’s top holdings include Berkshire Hathaway Inc. Class B (BRK.B) with a 15.56% weighting, followed by JPMorgan Chase & Co. (JPM) at 11.76%, and Visa Inc. Class A (V) and Mastercard Incorporated Class A (MA) at 7.84% and 7.16%, respectively.

The ETF has a total of 105 holdings, with its top 10 assets comprising 62.09% of its AUM. IYG’s expense ratio is 0.40%, lower than the category average of 1.12%.

IYG pays an annual dividend of $0.97, which translates to a yield of 1.37% at the current share price. The company’s dividend payouts have increased at a CAGR of 7% over the past three years. IYG has paid dividends for 22 consecutive years.

IYG has gained 11.5% over the past six months and 31.5% over the past year to close the last trading session at $71.05. It has a beta of 1.16. The fund’s NAV was $71.03 as of August 29, 2024.

IYG’s POWR Ratings reflect solid prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

IYG has an A grade for Trade, Buy & Hold, and Peer. Within the B-rated Financial Equities ETFs group, it is ranked #8 of the 41 ETFs.

To access all IYG’s POWR Ratings, click here.

ETF #2: Vanguard Financials Index Fund ETF Shares (VFH)

VFH is an exchange-traded fund launched and managed by Vanguard Equity Index Group. The fund seeks to track a market cap-weighted index of companies in the US financials sector. It is passively managed to hold US financials stocks across all market caps and uses a market-cap selection and weighting scheme capturing the broader financials market.

The fund tracks the MSCI US IMI 25/50 Financials Index. With $10.02 billion in AUM, VFH’s top holdings are JPM with an 8.63% weighting, BRK.B at 8.12%, and MA and V at 5.46% and 4.08%, respectively. The ETF has a total of 405 holdings, with its top 10 assets comprising 41.82% of its AUM.

The fund has an expense ratio of 0.10%, lower than the category average of 1.12%. VFH fund inflows were $17.45 million over the past three months.

VFH pays an annual dividend of $1.91, which translates to a 1.74% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 6.3% over the past three years. VFH has paid dividends for 19 consecutive years.

VFH has gained 12.6% over the past six months and 31.6% over the past year to close the last trading session at $109.79. It has a beta of 1.09. The fund’s NAV was $109.81 as of August 29, 2024.

VFH’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

The fund has an A grade for Trade and Buy & Hold and a B grade for Peer. Of the 41 ETFs in the B-rated Financial Equities ETFs group, VFH is ranked #2.

Click here to see all the VFH ratings.

ETF #1: The Financial Select Sector SPDR Fund (XLF)

XLF provides efficient exposure to the US financials segment. Its cap-weighted, S&P 500-only portfolio concentrates on large banks and avoids small-caps. It invests in companies from industries like diversified financial services, insurance, commercial banks, and capital markets. The fund tracks the Financial Select Sector Index.

The fund has an AUM of $44.84 billion. Its top holdings include BRK.B with a 13.46% weighting, followed by JPM at a 10.21% weighting, and V and MA at 6.88% and 6.30%, respectively. XLF has a total of 73 holdings, with the top 10 assets comprising 54.29% of its AUM.

The fund has an expense ratio of 0.09%, lower than the category average of 1.06%. Over the past three months, XLF fund inflows came in at $2.78 billion and $3.29 billion for the past six months. Also, it has a beta of 1.07.

XLF pays an annual dividend of $0.65, which translates to a yield of 1.44% at the current share price. Its dividend payouts have grown at a CAGR of 4.2% over the past three years. XLF has paid its dividends for 24 consecutive years.

XLF has surged 19.5% over the past six months and 14% over the past year to close the last trading session at $45.31. The fund has a NAV of $45.29 as of August 29, 2024.

XLF’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

XLF has an A grade for Buy & Hold and Trade. It also has a B grade for Peer. The fund has topped the list of 41 ETFs in the same group.

To access all the POWR Ratings for XLF, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

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XLF shares were trading at $45.38 per share on Friday afternoon, up $0.07 (+0.15%). Year-to-date, XLF has gained 21.63%, versus a 18.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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