More ways to invest in financials.
Even if you’re a regular to market media, the world of ways to play bank stocks looks pretty small. The Financial Select Sector SPDR Fund (ticker: XLF) is frequently flouted about when financial stocks are in the news, and occasionally even the SPDR S&P Bank ETF (KBE). But many of the bigger-name financial exchange-traded funds give you similar financial exposure.
Davis Select Financial ETF (DFNL)
Davis Funds has been kicking around in the mutual fund world since 1969, but they have inched into the ETF business with three actively managed funds, including DFNL. This is a broad financial look, with diversified firms at 44 percent, insurance at 29 percent and banks at 19 percent, though it’s forward looking with some IT companies with financial products, such as Alphabet (GOOG, GOOGL). Top holdings such as Markel Corp. (MKL) and American Express Co. (AXP) typically don’t garner as much weight in other financial funds, either. Expenses are surprisingly low for an actively managed ETF.
Expenses: 0.65 percent
Oppenheimer Financials Select Revenue ETF (RWW)
This Oppenheimer fund is admittedly gimmicky, but its singular twist to portfolio construction — and how it affects the holdings as a result — makes it worth mention as a big-financial alternative. The RWW tracks the same Standard & Poor’s 500 index financials as the XLF, but rather than weighting by market capitalization, it weights by revenues. That puts a surge into insurers, taking Berkshire Hathaway (BRK.A, BRK.B) from an 11 percent to a 15 percent weighting, and bumping Metlife (MET) and Prudential Financial (PRU) from the Nos. 13 and 17 weights to Nos. 6 and 7, among other insurer upgrades.
Expenses: 0.49 percent (includes 34-basis-point fee waiver)
PowerShares KBW Regional Banking Portfolio ETF (KBWR)
Rather than invest in big money-center financials like Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), PowerShares’ KBW Regional Banking Portfolio invests in so-called regional banks, offering much more in the way of growth potential. Roughly 62 percent of the fund is small-cap in nature, 36 percent is mid-cap and just 2 percent is considered large-cap. Better still, KBWR is equal-weighted so no single-bank collapse can crush the fund, which results in mere 4 percent weightings for top holdings East West Bancorp (EWBC) out of California, and New York’s Signature Bank (SBNY).
Expenses: 0.35 percent
First Trust Nasdaq ABA Community Bank Index Fund (QABA)
The QABA is an interesting slice of the banking industry, and also a smaller one — the average company size in QABA is $2.1 billion, or roughly half the $3.8 billion average market cap of the KBWR. First Trust’s ETF only invests in Nasdaq-listed banks, excluding the 50 largest banks or thrifts, as well as any that have an “international specialization” or a “credit-card specialization.” The result is a basket of 160 smaller bank stocks with even thinner concentrations than KBWR. East West Bancorp, for instance, is also the top holding of QABA, but at just 3.2 percent.
Expenses: 0.6 percent (includes 2-basis-point fee waiver)
PowerShares DWA Financial Momentum Portfolio ETF (PFI)
This particular PowerShares fund is essentially a bandwagon fan. At any given time, the fund will invest in at least 30 stocks (56 currently) that are exhibiting strong relative strength — momentum — versus the rest of the sector. The industry blend isn’t anything novel — 54 percent banks, 30 percent insurers, 5 percent capital markets and a few other small allocations. But you have an odd group of top holdings that feature Reinsurance Group of America (RGA) and Bank of the Ozarks at 1-2, followed closely behind by banking titan JPMorgan.
Expenses: 0.6 percent (includes 24-basis-point fee waiver)
iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI)
iShares’ IAI is perhaps one of the most literal ways to invest in the stock market, as its holdings belong to the investment services industry. This is a scant group of just 27 stocks, but they’re a who’s who of Wall Street, from investment banks like Goldman Sachs Group (GS) and Morgan Stanley (MS) to brokers like Charles Schwab Corp. (SCHW) and E-Trade Financial Corp. (ETFC) to even exchange operators like Nasdaq (NDAQ) and CBOE Holdings (CBOE). Unsurprisingly, this fund tends to underperform during market downturns but accelerates rapidly in bull markets.
Expenses: 0.44 percent
VanEck Vectors BDC Income ETF (BIZD)
This VanEck fund invests in business development companies, which do what many larger banks and investment firms won’t — provide financing to small- and midsize businesses. BIZD has just 25 holdings, and is very top-heavy with Ares Capital Corp. comprising 23 percent of the fund. Like real estate investment trusts, business development companies enjoy certain tax advantages, but must distribute at least 90 percent of taxable income as dividends to shareholders. That results in a fat yield of roughly 8 percent in BIZD. Per the heavy expense ratio — that includes a big chunk of indirect fees that are already baked into the business development companies’ performance.
Expenses: 0.41 percent (includes 17-basis-point fee waiver; 9.2 percent including acquired fund fees)
ProShares Global Listed Private Equity ETF (PEX)
The PEX is one of just a few funds that allow you to invest in the so-called “smart money,” which includes business development companies but also other private-equity firms. PEX is a global fund, so you get exposure to the likes of Canada’s Onex Corp., U.K.-based 3i and France’s Wendel at 10.3, 10.2 and 6.4 percent of the fund. But because it’s a global fund, you still have a huge chunk of American exposure, including Ares Capital at 9.8 percent. More than half the fund’s assets are invested in North American companies, 23 percent in the U.K. and 21 percent in Europe.
Expenses: 0.6 percent (2.89 percent including acquired fund fees)
WisdomTree Japan Hedged Financials Fund (DXJF)
WisdomTree’s DXJF is about as niche an international play on financials as you can get. This ETF owns 86 different Japanese financials, spanning diversified banks (36 percent), regional banks (23 percent), property and casualty insurance (15 percent) and other industries, and boasts a few familiar top holdings such as Nomura Holdings (NMR) and Mizuho Financial Group (MFG). But the fund takes it a step farther, implementing a currency hedge using futures, forward contracts and other instruments that allows it to benefit from a weaker yen.
Expenses: 0.48 percent
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9 Under-the-Radar Ways to Buy Financial Stocks originally appeared on usnews.com
