Financial Equities ETFs and Their Underlying Indexes – XLF, VFH and IYF

The financial sector is highly correlated with the broad market; putting money into Financial Equities ETFs could be a very handy tool for investors to act on their macro view on the economy with an emphasis on Finance. XLF, VFH and IVF are the three such ETFs.

XLF, The Financial Select Sector SPDR Fund holds the renowned SPDR brand, issued back in 1998, and since has amassed $21.44 billion assets. VFH, The Vanguard Financials ETF, carries the brand name of another giant pioneer, Vanguard, started 6 years afterward, 2004, attracted $5.58 billion AuM. As is its usual strategy, VFH’s expense ratio is kept at 0.1%, much lower than XLF’s 0.14%. Third, one, IVF, The iShares Dow Jones U.S. Financials ETF, issued by the now largest ETF issuer –BlackRock- in the year 2000, has since attained $1.61 billion assets. It asks a high expense fee of 0.44%.

XLF tracks S&P Financial Select Sector Index, which is created based on GICS financial sector. Since Vanguard does not own their own industry classification, they sourced from MSCI US Investable Market Financials 25/50 Index. The name of this index indicates that it is designed to meet the requirements of US Internal Revenue Code, that an RIC complied fund, at the end of each quarter of a RIC’s tax year no more than 25% of the value of the RIC’s assets may be invested in a single issuer and the sum of the weights of all issuers representing more than 5% of the fund should not exceed 50% of the fund’s total assets. That being considered, the primary element of this index is to capture the large, mid and small-cap segments of the US equity universe. All securities in the index are classified in the financial sector as per the Global Industry Classification Standard (GICS®).

IVF follows Dow Jones U.S. Financials Index, the same as what XLF tracks. Hence, the two funds should have been performing similarly. With greater than four times expenses ratio asked by BlackRock, compared to those of VFH and XLF, there is not much for BlackRock to do to lure investor’s capital toward their IVF.

So, what is the actual performance over the past decade?



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