Should You Invest In The iShares U.S. Financial Services ETF (IYG)?

Launched on 06/12/2000, the iShares U.S. Financial Services ETF IYG is a passively managed exchange traded fund designed to provide a broad exposure to the Financials - Broad segment of the equity market.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 15, placing it in bottom 6%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $1.24 billion, making it one of the larger ETFs attempting to match the performance of the Financials - Broad segment of the equity market. IYG seeks to match the performance of the Dow Jones U.S. Financial Services Index before fees and expenses.

The Dow Jones U.S. Financial Services Index measures the performance of the financial services sector of the U.S. equity market.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.39%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.95%.

Sector Exposure And Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector--about 100% of the portfolio.

Looking at individual holdings, JPMorgan Chase & Co JPM accounts for about 11.52% of total assets, followed by Visa Inc Class A V and Mastercard Inc Class A MA.

The top 10 holdings account for about 58.68% of total assets under management.

Performance And Risk

Year-to-date, the iShares U.S. Financial Services ETF has added roughly 7.47% so far, and it's up approximately 7.64% over the last 12 months (as of 07/24/2023). IYG has traded between $140.77 and $176.24 in this past 52-week period.

The ETF has a beta of 1.16 and standard deviation of 23.16% for the trailing three-year period, making it a high risk choice in the space. With about 106 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares U.S. Financial Services ETF sports a Zacks ETF Rank of 4 (Sell), which is based on expected asset class return, expense ratio, and momentum, among other factors. IYG, then, is not a suitable option for investors seeking exposure to the Financials ETFs segment of the market. Instead, there are better ETFs in the space to consider.

Vanguard Financials ETF VFH tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF XLF tracks Financial Select Sector Index. Vanguard Financials ETF has $8.35 billion in assets, Financial Select Sector SPDR ETF has $34.95 billion. VFH has an expense ratio of 0.10% and XLF charges 0.10%.