Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

3 Bank ETFs Your Broker Forgot to Mention

It is the second-largest sector weight in the S&P 500 and perhaps the one that is still the most controversial. Given those points, it is easy to understand why many investors, when pressed, could name at least ETF that tracks the financial services sector.

The ETFs to be named would probably be the Financial Select Sector SPDR (NYSEARCA:XLF), the Vanguard Financials (NYSEARCA:VFH) or another one of the legitimately popular funds. In other words, it might come as a surprise to some that it is entirely possible for an ETF tracking financial services names to lead a low fanfare existence.

3 Bank ETFs Your Broker Forgot to MentionIt is possible, but as is the case with so many other sector funds that do not command the attention their larger counterparts do, the following financial services ETFs are worthy of consideration for investors’ portfolios.

First Trust Financials AlphaDEX Fd (NYSEARCA:FXO) Home to $215.6 million in assets under management and average daily volume north of 247,000 shares, the First Trust Financials AlphaDEX Fund is by no means obscure. It is merely smaller and less heavily than larger funds such as XLF and VFH.

Importantly, First Trust Financials AlphaDEX Fd (NYSEARCA:FXO) does over a credible alternative to more heralded bank ETFs because of the AlphaDEX methodology, which goes beyond traditional cap-weighting found in so many sector and broad market ETFs.

That means FXO’s constituents are screened on “growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets,” according to First Trust. Importantly, First Trust Financials AlphaDEX Fd (NYSEARCA:FXO) is home to 164 stocks, twice as many as XLF, and the former allocates no more than 1.33 percent to any of its individual holdings. Those factors give FXO a quasi-equal weight approach and helps investors dodge excessive weightings to the usual suspects of the banking sector such as Bank of America Corp (NYSE:BAC) and Wells Fargo & Company (NYSE:WFC). First Trust Financials AlphaDEX Fd (NYSEARCA:FXO) has returned over 21 percent in the past year.

PowerShares S&P SllCp Ficls Ptflio (NASDAQ:PSCF) The PowerShares S&P SmallCap Financials Portfolio tracks over 100 stocks parsed from the S&P SmallCap 600 Index, but it is worth noting that this is not strictly a bank stock ETF. In fact, just one of the ETF’s top-10 holdings and two of the top-20 are true bank stocks.

Rather, PSCF is heavily allocated to small-cap real estate investment trusts. The fund is also not 100 percent allocated to small-caps as it devotes about 14 percent of its weight to mid-cap names. As an income play for investors who are not risk-averse, PSCF is worthy of some consideration because the fund has a 6.5 percent distribution yield.

Distribution yield is calculated by dividing the ETF’s most recent distribution, in this case almost 52 cents per share on December 31, and dividing it by the fund’s net asset value on that date, according to PowerShares. Investors will pay up for PSCF a bit as the ETF features a P/E ratio of almost 23.

Market Vectors Bank and Brokerage ETF (NYSE: RKH) Average daily turnover of about 27,300 shares for RKH may seem off-putting to volume fanatics, but two things are worth noting here. First, the ETF is home to just 26 stocks and none of the top-10 holdings (59.3 percent of the ETF’s weight) can be considered thinly traded. Those names include HSBC Holdings plc (NYSE:HBC), JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C).

Second, RKH is up 27.3 percent in the past year, meaning this often overlooked fund has slightly outperformed both XLF and VFH. The key to RKH’s 2013 potential upside is obvious. This fund is not solely U.S-focused. Rather, U.S.-based banks account for just 38.2 percent of the fund’s weight.

European, be they U.K.-based, Spanish, Swiss or others, represent over 34 percent of RKH’s total weight. Some of those names surged in 2012 and will have to deliver in the form of less controversy and higher dividends this year to please investors.

This article was originally written by The ETF Professor, and posted on Benzinga.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!