Should You Invest in the Vanguard Financials ETF?

The Vanguard Financials ETF VFH was launched on 01/26/2004, and is a passively managed exchange traded fund designed to offer broad exposure to the Financials - Broad segment of the equity market.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 2, placing it in top 13%.

Index Details

The fund is sponsored by Vanguard. It has amassed assets over $9.39 billion, making it one of the largest ETFs attempting to match the performance of the Financials - Broad segment of the equity market. VFH seeks to match the performance of the MSCI US Investable Market Financials 25/50 Index before fees and expenses.

The MSCI US Investable Market Index/Financials 25/50 measures the investment return of stocks in the financial sector.

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 0.10%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.89%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, 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 8.77% of total assets, followed by Berkshire Hathaway Inc and Mastercard Inc.

The top 10 holdings account for about 42.55% of total assets under management.

Performance and Risk

The ETF has gained about 9.98% and is up about 19.07% so far this year and in the past one year (as of 08/08/2024), respectively. VFH has traded between $75.97 and $107.02 during this last 52-week period.

The ETF has a beta of 1.09 and standard deviation of 19.50% for the trailing three-year period, making it a medium risk choice in the space. With about 407 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard Financials ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VFH is an excellent option for investors seeking exposure to the Financials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

IShares U.S. Financials ETF IYF tracks Dow Jones U.S. Financials Index and the Financial Select Sector SPDR ETF XLF tracks Financial Select Sector Index. IShares U.S. Financials ETF has $2.94 billion in assets, Financial Select Sector SPDR ETF has $40.75 billion. IYF has an expense ratio of 0.40% and XLF charges 0.09%.

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