Finance ETFs, Which are the Best to Invest in? Opinions and Advice

What are the best Finance ETFs? Let’s start immediately with a premise: with financial sector refers to those activities that are connected to financial operations, that is to say planning e investment management (including insurance), money management, access to credit, financial market transactions, financial advisory services, control of the finances of a company, control of public finances.

The main entities that deal with the financial sector, money management and all related services are the banks.

Financial sector ETFs have perhaps become a little less “fashionable”, given that in recent years we have witnessed a strong demand in sectors that we can enclose in the mega trend such as the digital, IT, or green economy sectors.

However, the sector is still interesting, and could represent a good opportunity.

Let’s see together what they are best financial ETFs!

Finance: what are we talking about?

The finance sector, like everyone else, has gone through and is going through a strong period change.

Focusing on banks, we have witnessed a radical change, moving from an increasingly marked digitization of banking services (see the closure of some physical branches, the digitization of many operations, the launch of websites and native bank applications to make the experience of the best and immediate user).

Other factors that led to the change were undoubtedly macroeconomic factors and social developments.

Banks are therefore changing and modifying their business model, which seems to lead to two trends: on the one hand, particular attention to advisory with high added value intended for private customers e corporate higher level, and on the other hand the digitization of processes as already mentioned above for small business customers.

Going into the analysis of financial sector, we see that the numbers are encouraging: in 2021 the sector under consideration increased by around 20% and beat the S&P500. In terms of growth, it beat several sectors, only doing less well than the energy sector.

The spring that triggered investors was the confidence of arecovering economytherefore the shares had low valuations with however good growth opportunities foreseen on the horizon.

Furthermore, a positive factor for the financial market is when central banks decide to raise i interest rates.

And now let’s dive into the details and look at the best ETFs in the industry.

The three best ETFs on Borsa Italiana

Let’s take a look at the three equity ETFs one by one.

Lyxor EURO STOXX Banks (DR) UCITS ETF

This ETF is benchmarked against the EURO STOXX Banks index which tracks the Eurozone banking sector, and was launched in 2013.

The ETF has a large size, ie 1,589 million euros, and is characterized by a physical replication method.

Lyxor’s ETFs are effective publicly traded investment vehicles that provide transparent, liquid and low cost exposure to the underlying benchmark index.

focusing ongeographical allocationthe fund provides geographic exposure to Spain, France and Italy who share the podium, followed by Holland, Finland and Germany, and finally Austria, Belgium and Ireland.

I management costs per year amount to 0.30%, the dividend policy is accumulatingwhile the risk profile it’s tall, even a 6.

Xtrackers MSCI World Financials UCITS ETF

The second ETF we present to you was listed in 2016and has an average size of 334 million euros.

The MSCI World Financials index tracks the financial sector of developed markets from around the world.

It is less risky than the previous one (value even a 5 on the reference scale), and is characterized by a physical replication method and a accumulating dividend policyi.e. they are reinvested in the fund itself.

The domicile of the fund is Ireland; the annual management costs amount to 0.25% per annum.

Most of the companies are American (48.61%), followed by Canadian (8.97%) and British (6.33%).

SPDR MSCI Europe Financials UCITS ETF

Our latest ETF tracks the European financial sector.

Also in this case the size of the fund is medium, equal to 316 million euros, and the launch date is December 2014so it’s a fairly mature ETF, like the previous ones presented.

I annual management costsi are 0.18%, and the fund has a accumulation policyi.e. dividends are not distributed but reinvested in the fund itself, thus exploiting the effect of compound interest.

The replication method is physical, and the risk profile is medium (even a 5 on a scale of 1 to 7).

If we focus on breakdown by sectorwe can see that banks are the most represented sector (47.06%), followed by insurance companies (31.36%), capital markets (15.80%) and finally financial services (5.77%).

Is it worth investing in ETFs in the finance sector?

We come to us: we have seen what are the best ETFs in the industry, and we have tried to position the sector itself, finding points in favor of its potential (but also some obstacles that should not be underestimated).

As we have seen in the three ETFs examined, the risk profile is high for all; this is because the sector is basic risky. It certainly is capable of guaranteeing gods returns high, but making you run risks that should not be underestimated.

Investing in such a sector may not be your case if you are approaching investments for the first time, or if you are not used to seeing your investment undergo heavy fluctuations that could make you hesitate and make you question your work.

Conversely, it could bring some movement to the portfolio of a more experienced investor, willing to let his capital run a little more risk.

Of course don’t forget about diversification within your portfolio, and therefore if you want to insert an ETF in the finance sector, remember to also keep sectors capable of balancing and “hedging” you in your investment strategy; it therefore also focuses on safer sectors.

Additional Resources

If you don’t know where to start investing, then here are some free resources to consult:

Good continuation!