Financial ETF

Financial sector ETFs offer the potential for exceptional returns to investors; however, financial ETFs also are subject to a significant degree of risk, especially in the case of short financial ETF and leveraged financial ETF investments. Banking institutions, brokers, insurers, and asset management companies are typically the basis for financial ETF securities.  Because the performance of the financial sector typically mirrors the overall performance of the various financial benchmarks, financial ETF investments are usually about as volatile as the market itself. Financial ETFs are available in a variety of categories including the global, national, sector-level and narrow sector financial ETFs; this makes financial ETF investment a solid way to diversify an ETF portfolio. However, due to a relatively high level of volatility, financial ETFs are usually used in conjunction with short financial ETFs or other hedges to prevent major losses during an unexpected market downturn.

Short financial ETFs

For investors who believe the underlying securities for a financial ETF will decline in value, short financial ETFs offer the ability to make a profit even when the value of the index or benchmark decreases. Also known as inverse financial ETFs, these are available in leveraged and unleveraged options depending on the individual investor’s tolerance for risk. In recent years, ultrashort financial ETFs have shown superior returns in some cases due to the general downturn in the overall economy.

Leveraged financial ETFs

Investors can also choose from a wide range of leveraged financial ETFs; these provide the opportunity for investors to gain significant exposure on the market with a relatively small investment. Leveraged financial ETFs are available in 2X and 3X types depending on the margin level; as with all leveraged investments, leveraged financial ETFs are subject to a higher degree of risk and volatility and should be used sparingly as part of a comprehensive and diversified investment portfolio.

List of financial sector ETFs

While far from comprehensive, this list of financial ETFs lists many of the major options available for investors including short financial ETF and triple leveraged financial ETF investments.
  • ProShares UltraShort Financials (SKF)
  • PowerShares Dynamic Banking Portfolio (PJB)
  • Claymore/Clear Global Exchanges, Brokers & Asset Managers Index ETF (EXB)
  • Rydex S&P Equal Weight Financials ETF (RYF)
  • First Trust Financials AlphaDEX Fund (FXO)
  • PowerShares Dynamic Banking Portfolio (PJB)
  • PowerShares Financial Preferred Portfolio (PGF)
  • PowerShares Dynamic Financials Sector Portfolio (PFI)
  • iShares Dow Jones U.S. Broker-Dealers Index Fund (IAI)
  • Financial Select Sector SPDR Fund (XLF)
  • Vanguard Financials ETF (VFH)
  • Merrill Lynch Regional Bank HOLDRs (RKH)
  • iShares Dow Jones U.S. Financial Sector Index Fund (IYF)
  • iShares Dow Jones U.S. Financial Services Index Fund (IYG)
  • WisdomTree International Financial Sector Fund (DRF)
  • Direxion Financial Bull 3x Shares (FAS)
  • Direxion Financial Bear 3x Shares (FAZ)
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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