Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some financial stocks to your portfolio but don’t have the time or expertise to hand-pick a few, the iShares Dow Jones U.S. Financial Sector ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF’s expense ratio — its annual fee — is a relatively low 0.46%.
This ETF has a mixed performance record, lagging the world market over the past five and 10 years (during which they suffered through a credit crisis) and topping it over the past three. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
If you expect the financial sector to do well over time as it recovers from the meltdown of several years ago, you might want to consider financial stocks for your portfolio. Remember, for example, how good banks are at levying fees and generating income, no matter what regulations are thrown at them.
More than a handful of financial companies had strong performances over the past year. Visa Inc (NYSE:V), for example, surged 36% and is poised to profit from the ongoing global shift from cash transactions to electronic ones. Its presence in emerging markets is particularly promising, as such economies are growing rapidly — and for Visa Inc (NYSE:V), that means more people beginning to use plastic for purchases. Visa Inc (NYSE:V) is far bigger than its rivals, but it’s worth noting that MasterCard is doing particularly well. Both companies are threatened by the potential of mobile payments and increased regulation, and Visa Inc (NYSE:V) in particular by a recent court decision that may lead to lower revenue from debit cards.
AFLAC Incorporated (NYSE:AFL), an insurance company, quacked up a 34% gain. It derives the lion’s share of its revenue from Japan, and it stands to profit as the country’s economic condition improves. It’s also experiencing solid growth in the U.S., where its supplemental insurance is selling well. With a forward P/E below 9 and a yield of 2.3%, AFLAC Incorporated (NYSE:AFL) looks like a bargain. Its profit margins have been increasing in recent years, too.