Financial ETFs are the exchange-traded funds that invest in the stock of financial services companies. These companies include banks, insurance companies, mortgage companies, investment banks, brokerage firms, and companies that provide consumer credit.
The performance of financial stocks and financial ETFs is correlated with the economy of the country. Financial ETFs perform well and generate high returns when the economy is doing well, unemployment rates are low, and people have more money to spend on credit cards and home or car loans.
Financial ETFs are considered to be safe and reliable investments; however, investors must exercise caution before investing in them.
Factors to Consider Before Investing in Financial ETFs
Investors must take a look at the companies whose stocks the financial ETFs are investing in. The companies must be reliable and well-established, like the big banks. At the same time, the foundational strength and financial health of the companies must also be considered before investing in financial ETFs.
In addition to the company-specific parameters, investors must also consider the characteristics of the particular financial ETFs. The expense ratio, average rate of return, dividend yield, historical performance, and assets under management should be considered before investing in financial ETFs. Technical analysis also works well to predict the future performance of financial ETFs based on their past track record.
Which Financial ETFs Should I Buy?
A large number of financial ETFs trade on the US stock exchanges. We have shortlisted them on the basis of their expense ratios and daily volume to select the best financial ETFs for you. Investors must buy financial ETFs with expense ratios less than 2% and a daily volume of more than 10,000.
Some of the financial ETFs invest exclusively in the stock of banks or insurance companies, while others invest in a mixed bag of securities. The selection of financial ETFs to invest in will largely depend on the exposure needed by investors, their investment goals, and risk tolerance.