A Star Among Financial Services ETFs

After slumping last year, the financial services is sector is on the path to redemption this year as highlighted by a year-to-date gain of nearly 13 percent for the Financial Select Sector SPDR XLF, the largest exchange traded fund tracking the sector.

What Happened

While standard, cap-weighted financial services ETFs, such as XLF, are posting solid performances this year, some focused industry funds are doing even better. Investors looking for outperformance among financial services ETF may want to move away from bank-heavy funds and consider the insurance space.

Look at the Invesco KBW Property & Casualty Insurance ETF KBWP. One of just a handful of insurance ETFs on the market, is up 18 percent year to date and was one of just 14 U.S.-listed ETFs to hit all-time highs on Wednesday.

Why It's Important

KBWP, which turns nine years old later this year, tracks the KBW Nasdaq Property & Casualty Index. The fund makes sense for investors seeking exposure to property and casualty insurance stocks because while plenty of those companies are large, traditional financial services are usually lightly allocated to the insurance sector. For its part, XLF devotes almost 18.70 percent of its weight to insurance companies, the ETF's third-largest industry weight behind banks and capital markets companies.

KBWP is home to 24 stocks with American International Group Inc. AIG, Travelers Cos. TRV and Chubb Ltd. CB combining for over a quarter of the fund's weight. Year to date, KBWP is outperforming an equal-weight insurance industry while performing inline with a rival cap-weighted product.

While insurance stocks and ETFs languished last year, the group has historically performed well following interest rate hike. Since it often takes six months or so for interest rate increases to be felt throughout the broader economy, some of KBWP's 2019 bullishness could be attributable to the Federal Reserve's four 2019 rate hikes.

What's Next

KBWP reflects the value proposition often associated with the financial services sector. Across the three market capitalization segments, more than 55 percent of KBWP's holdings are classified as value stocks, but none of the ETF's components are considered growth stocks. The average market capitalization of KBWP's holdings is $21.74 billion.

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