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.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Subscribe

Enter your email:

Delivered by FeedBurner

X

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!