In this article, we discuss 10 best financial and fintech ETFs to buy. If you want to skip our discussion on the financial industry, head directly to 5 Best Financial and Fintech ETFs To Buy.
In the last two years, the financial services industry has shown resilience in navigating uncertainty caused by the pandemic, which created upheaval in real estate, insurance, investment, banking, and capital markets. Despite this, ongoing challenges like geopolitical tensions, inflation, and supply chain disruptions could lead to increased regulations and transparency demands in 2023. According to Deloitte, retail banks are expected to face challenges like higher rates, inflation, and lower growth. Global banks’ net interest income should grow, but stress in the housing market could impact Asia-Pacific earnings. The United States is also facing issues in mortgage and auto loan markets, with scrutiny on additional fees impacting bank balance sheets. On a positive note, demand from retail banking customers improved cross-channel experiences during tough times. Deloitte believes that central bank rate hikes could improve commercial bank net interest income, although clients seeking higher interest rates might lead to deposit product rate increases.
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As per IMF, the initial projection is for a growth decline, moving from 3.4% in 2022 to 2.8% in 2023, and eventually settling at 3.0% in 2024. Advanced economies are forecasted to undergo a prominent growth slowdown, nosediving from 2.7% in 2022 to 1.3% in 2023. In an alternative scenario involving more financial stress, global growth would decrease to roughly 2.5% in 2023, with advanced economies seeing growth under 1%. IMF noted that even more concerning is the fact that the significant tightening of policies over the past year is now adversely impacting the financial sector. After a prolonged phase of low inflation and remarkably low interest rates, the abrupt tightening of monetary policies last year has caused notable losses in long-term fixed-income assets.
New trends are shaping the finance sector in 2023 and beyond. For example, artificial intelligence is reshaping multiple industries, including finance. According to a report by RSM US, financial institutions can benefit from AI in four key areas – loan application processing, compliance and risk management, fraud detection, and customer service. Secondly, conventional financial products are typically designed for the average user, resulting in products that may be functional but lack exceptional customer satisfaction. Fintech firms are now emphasizing on hyper-personalization to adapt to evolving consumer preferences. Moreover, with the increase in outsourcing, numerous organizations are expanding their utilization of third-party service providers. Asset management firms, in particular, are embracing this trend to concentrate on their primary expertise – interacting with clients and overseeing assets, while outsourcing other functions.
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Although the performance of the financial sector in 2023 has been unstable due to skyrocketing inflation and banking systems collapsing, it has historically been a resilient S&P 500 component. Some of the best financial stocks to buy include The Goldman Sachs Group, Inc. (NYSE:GS), Chubb Limited (NYSE:CB), and Coinbase Global, Inc. (NASDAQ:COIN). However, in this article, we discuss the best financial ETFs, which provide access to a diverse portfolio of financial and fintech stocks.
Our Methodology
We chose ETFs that offer exposure to large-, mid- and small-cap financial stocks to create a well-rounded list of the popular funds. We have also discussed the top holdings of the ETFs to offer better insight to potential investors. These financial ETFs have amassed significant gains in the last 5 years. The list is ranked in ascending order of the 5-Year performance of these ETFs as of August 9, 2023.
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Best Financial and Fintech ETFs To Buy
10. Capital Link Global Fintech Leaders ETF (NYSE:KOIN)
5-Year Performance as of August 9: 16.68%
Capital Link Global Fintech Leaders ETF (NYSE:KOIN)’s main objective is to achieve investment outcomes that track the AF Global Fintech Leaders Index’s performance. This index was created to represent the performance of companies that utilize or are engaged in fintech innovations. Capital Link Global Fintech Leaders ETF (NYSE:KOIN), established on January 30, 2018, holds a portfolio of 38 stocks as of August 8, 2023. It offers a net expense ratio of 0.75% and has net assets worth $13.6 million.
Intuit Inc. (NASDAQ:INTU) is a prominent holding of Capital Link Global Fintech Leaders ETF (NYSE:KOIN). Intuit Inc. (NASDAQ:INTU) provides financial management and regulatory solutions for individuals, small enterprises, freelancers, and accounting experts worldwide. On July 27, Credit Suisse reiterated a bullish outlook on the software segment of the economy, and Intuit Inc. (NASDAQ:INTU) was one of the firm’s favorite stock picks.
According to Insider Monkey’s first quarter database, 86 hedge funds were bullish on Intuit Inc. (NASDAQ:INTU), compared to 92 funds in the prior quarter. Henry Ellenbogen’s Durable Capital Partners is the largest stakeholder of the company, with 1.6 million shares worth $745.6 million.
In addition to The Goldman Sachs Group, Inc. (NYSE:GS), Chubb Limited (NYSE:CB), and Coinbase Global, Inc. (NASDAQ:COIN), Intuit Inc. (NASDAQ:INTU) is one of the best financial stocks to buy.
ClearBridge Large Cap Growth Strategy made the following comment about Intuit Inc. (NASDAQ:INTU) in its second quarter 2023 investor letter:
“Taking advantage of post-earnings weakness, we initiated a position in Intuit Inc. (NASDAQ:INTU), a provider of software for small business accounting and tax preparation under the QuickBooks and TurboTax brands as well as personal finance (Credit Karma) and marketing services (Mailchimp). We see a clear path to upside earnings revisions as the company expands new products that increase its total addressable market and drive average revenue per user growth.”
9. Invesco S&P 500® Equal Weight Financials ETF (NYSE:RSPF)
5-Year Performance as of August 9: 24.19%
Invesco S&P 500® Equal Weight Financials ETF (NYSE:RSPF) mirrors the S&P 500 Equal Weight Financials Index’s performance. The ETF was launched on November 1, 2006. As of August 7, 2023, its portfolio comprises 73 stocks and the fund offers an expense ratio of 0.40%. Invesco S&P 500® Equal Weight Financials ETF (NYSE:RSPF) is one of the best financial ETFs to buy.
Comerica Incorporated (NYSE:CMA) is the largest holding of the Invesco S&P 500® Equal Weight Financials ETF (NYSE:RSPF). Comerica Incorporated (NYSE:CMA) offers different financial products and services, operating through Commercial Bank, Retail Bank, Wealth Management, and Finance segments. On July 21, Comerica Incorporated (NYSE:CMA) reported a Q2 GAAP EPS of $2.01 and a revenue of $924 million, outperforming Wall Street estimates by $0.15 and $21.41 million, respectively.
According to Insider Monkey’s first quarter database, Ken Griffin’s Citadel Investment Group is the leading position holder in Comerica Incorporated (NYSE:CMA), with 3.17 million shares worth $137.8 million.
Third Avenue Value Fund made the following comment about Comerica Incorporated (NYSE:CMA) in its first quarter 2023 investor letter:
“The largest detractors from Fund performance during the quarter included two banks, Comerica Incorporated (NYSE:CMA) and Deutsche Bank. As it relates to the Fund specifically, events within U.S. banking applied most directly to our investment in Comerica, a U.S. super-regional that does have a large portion of corporate deposits and is not classified as a globally systemically important bank (“G-SIB”), which means it has not recognized certain mark-to-market securities losses in its regulatory capital. Comerica was a 2.6% position at the beginning of the quarter, prior to a roughly 34% stock price decline during the quarter. After purchasing more shares following the stock price decline, the Fund’s position in Comerica was approximately 2.3% at quarter end. While the general contagion fears and bank depositor behavior remain a fluid situation today, we took some confidence from immediate, forceful and targeted actions by the Fed, FDIC and Treasury. In our view, the Fed’s Bank Term Funding Program (“BTFP”) seems a well-tailored and appropriate near-term liquidity solution that allows banks to obtain immediate liquidity, collateralized by the par value of securities, to meet any near-term deposit outflows. At the time of this writing, early signs are that the deposit flight from regional banks is calming rapidly and depositor psychology is improving, though this could change. To the extent that calming continues, our suspicion is that there may be very attractive bargains to be had among regional banks. More will be known in the coming days and weeks as information regarding deposit flows emanates post-quarter end. That said, there will remain some mystery around the extent of the bargains on offer because increases in FDIC funding, increases in regulatory capital requirements, more stringent liquidity stress testing, and changes to the list of banks subject to G-SIB regulatory regimes are all on the table now. It is also very likely that deposit costs, which had been rising very slowly, will rise much more rapidly as commercial banks work harder to entice depositors to stay put. None of these developments, if they eventuate, are likely to impact banks’ returns and earnings in a positive way.
More broadly, the Third Avenue Value Fund owned investments categorized as financials totaling 15.94% by weight, at quarter end. This category includes non-bank financials such as Old Republic, a U.S. property and casualty insurer and title insurance business, Lazard, an advisory business and asset management firm, and Ashmore, a U.K. asset management firm specializing in emerging markets credit. The Fund’s actual bank exposure at quarter end totaled 9.52% and is comprised of Bank of Ireland, Deutsche Bank and Comerica, in order of position size…” (Click here to read the full text)
8. Financial Select Sector SPDR Fund (NYSE:XLF)
5-Year Performance as of August 9: 25.42%
Financial Select Sector SPDR Fund (NYSE:XLF)’s primary objective is to achieve investment results that closely align with the price and yield performance of the Financial Select Sector Index. This index aims to accurately represent the financial sector within the S&P 500 Index. As of August 7, 2023, the fund has an expense ratio of 0.10% and assets under management worth $35.5 billion. Financial Select Sector SPDR Fund (NYSE:XLF)’s portfolio consists of 72 stocks and it is one of the best financial ETFs to monitor.
Berkshire Hathaway Inc. (NYSE:BRK-B) is the largest holding of the Financial Select Sector SPDR Fund (NYSE:XLF). Berkshire Hathaway Inc. (NYSE:BRK-B)’s operating earnings for Q2 2023 experienced a 6.6% year-over-year increase, reaching $10 billion, marking an increase from $8.07 billion in the preceding quarter and $9.42 billion in the same quarter last year. This growth was primarily attributed to robust performance in its insurance division, which saw notable improvements in both underwriting and investment income.
According to Insider Monkey’s first quarter database, 108 hedge funds were bullish on Berkshire Hathaway Inc. (NYSE:BRK-B), compared to 110 funds in the prior quarter. Bill & Melinda Gates Foundation Trust held the largest stake in the company, comprising 19.6 million shares worth over $6 billion.
Here is what Black Bear Value Fund has to say about Berkshire Hathaway Inc. (NYSE:BRK-B) in its Q3 2022 investor letter:
“Going forward I expect Berkshire to compound at above average returns from this price. BRK is a collection of high-quality businesses, excellent management, and a good amount of optionality in their cash position. If the cash were to be deployed accretively, the true value would be greater than an 8% premium (as mentioned above). The combination of a pie that is growing, an increasing share of said pie due to stock buybacks, upside optionality from cash and a tight range of likely business outcomes that span a variety of economic futures gives me comfort in continuing to own Berkshire.
7. First Trust Financials AlphaDEX Fund (NYSE:FXO)
5-Year Performance as of August 9: 28.27%
First Trust Financials AlphaDEX Fund (NYSE:FXO)’s primary aim is to achieve investment outcomes that generally correspond to price and yield performance of the StrataQuant Financials Index. This index, referred to as an “enhanced” index, is created, maintained, and sponsored by ICE Data Indices and employs the AlphaDEX stock selection method to pick stocks from the Russell 1000 Index. The fund was introduced on May 8, 2007, and its net expense ratio remains 0.62% as of December 1, 2022. The ETF’s portfolio consists of 100 stocks. First Trust Financials AlphaDEX Fund (NYSE:FXO) is one of the best financial ETFs to buy.
Western Alliance Bancorporation (NYSE:WAL) is the biggest holding of First Trust Financials AlphaDEX Fund (NYSE:FXO). Western Alliance Bancorporation (NYSE:WAL) is the holding company for Western Alliance Bank, which offers a range of banking products and associated services, primarily catering to Arizona, California, and Nevada. On July 18, the company reported a Q2 GAAP EPS of $1.96, in line with market estimates. The revenue increased 8% year-over-year to $669.3 million, outperforming Wall Street consensus by $13.83 million.
According to Insider Monkey’s first quarter database, 31 hedge funds were long Western Alliance Bancorporation (NYSE:WAL), compared to 26 funds in the prior quarter. Lansing Davis’ Davis Capital Partners is a prominent stakeholder of the company, with 2.50 million shares worth $88.85 million.
Miller Value Deep Value Strategy made the following comment about Western Alliance Bancorporation (NYSE:WAL) in its second quarter 2023 investor letter:
“During the quarter, we initiated positions in Western Alliance Bancorporation (NYSE:WAL) and Gray Television (GTN). Western Alliance is a leading national commercial bank with strong regional markets. The company has a capital-light business model (less branch focus). Following the Silicon Valley Bank collapse, Western Alliance saw significant share price weakness as the marketplace tried to draw similarities between the two companies. While initially experiencing deposit weakness, that has subsided and returned to growth as Western has a significantly more diversified business model with long-term customers having multiple products and services. The company’s underwriting capabilities and operations are best-in-class in our opinion. Management also appears fully aligned with shareholders and focused on shifting underwriting to a lower risk portfolio of loans. The company has taken incremental actions that should have accretive benefits to enhance capital ratios starting this quarter and further improving into 2024. Western’s share price is down 60%+ from its 52-week high, a deep discount to book value and 30%+ normalized earnings yield. We anticipate Western’s earnings troughing in the near term and improving over the next 6 to 12 months.
Long-term growth should remain above the peer group, ROAs at the high end of the industry, supporting Return on Tangible Common Equity (ROTCE) of 18-20%, with possible upside to 20-22% as the mortgage market improves over time. Both estimates are nicely above consensus long-term expectations. Over the next 3-5 years, returning to normalized EPS and valuation expanding back towards its historical average would support upside potential near three times current price levels.”
6. iShares U.S. Financials ETF (NYSE:IYF)
5-Year Performance as of August 9: 29.22%
iShares U.S. Financials ETF (NYSE:IYF) seeks to replicate the investment outcomes of the Russell 1000 Financials 40 Act 15/22.5 Daily Capped Index, which is composed of U.S. financial sector stocks. The ETF provides exposure to banks, insurers, and credit card companies. iShares U.S. Financials ETF (NYSE:IYF) was established on May 22, 2000. As of August 8, 2023, the ETF holds total assets valued at $1.9 billion and a portfolio consisting of 137 stocks. The fund has an expense ratio of 0.39%. iShares U.S. Financials ETF (NYSE:IYF) is one of the best financial ETFs to invest in.
American financial giant JPMorgan Chase & Co. (NYSE:JPM) is one of the top holdings of the iShares U.S. Financials ETF (NYSE:IYF). On July 14, JPMorgan Chase & Co. (NYSE:JPM) reported a Q2 non-GAAP EPS of $4.37 and a revenue of $41.3 billion, exceeding Wall Street estimates by $0.61 and $2.45 billion, respectively.
According to Insider Monkey’s first quarter database, JPMorgan Chase & Co. (NYSE:JPM) was part of 112 hedge fund portfolios, compared to 100 in the prior quarter. Edgar Wachenheim’s Greenhaven Associates is a significant position holder in the company, with a stake worth $617.5 million.
Like The Goldman Sachs Group, Inc. (NYSE:GS), Chubb Limited (NYSE:CB), and Coinbase Global, Inc. (NASDAQ:COIN), JPMorgan Chase & Co. (NYSE:JPM) is one of the top financial stocks to consider.
Madison Sustainable Equity Fund made the following comment about JPMorgan Chase & Co. (NYSE:JPM) in its second quarter 2023 investor letter:
“JPMorgan Chase & Co. (NYSE:JPM) has rebounded nicely following the mini-bank crisis in March. They held an analyst meeting in May at which they gave updated guidance on net interest income. They expect net interest income to increase to $84 billion from its forecast of $81 billion as First Republic assets will get a nice boost from rising interest rates.”
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Disclosure: None. 10 Best Financial and Fintech ETFs To Buy is originally published on Insider Monkey.