Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some financial stocks to your portfolio, the Guggenheim S&P 500 Equal Weight Financials ETF (NYSEMKT:RYF) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously. Its holdings are weighted equally, giving each of them a roughly equal chance of influencing the fund's performance.
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is a relatively low 0.50%. It recently yielded about 2.3%, and it's very small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed reasonably, lagging the world market over the past five years (which included the credit crisis), but beating it over the past three. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 17%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
If you expect the financial sector to do well over time as it recovers from the meltdown of several years ago, you might want to consider financial stocks for your portfolio. Remember, for example, how good banks are at levying fees and generating income, no matter what regulations are thrown at them.
More than a handful of financial companies had strong performances over the past year. Regions Financial (NYSE:RF), up 41%, looks rather attractive on many counts, having repaid its TARP obligation, posting improving net interest margin and asset quality, and with a powerful presence in the growing Southeast region. My colleague Sean Williams has nominated the company's leader for CEO of the year, and some still see the stock as undervalued. Not so long ago, it was one of the worst-rated regional banks, but it has been turning things around.
Huntington Bancshares (NASDAQ:HBAN), up 25%, has been aggressively reducing its loan-loss provisions while its business has been growing, thanks to talented management. Its 2.2% dividend yield might not be tantalizing, but it's up fourfold since 2011, and the company does sport a lot of room to grow -- organically and via acquisitions. Its CEO recently bought nearly $300,000 worth of shares, too, which is a bullish sign.
KeyCorp (NYSE:KEY) gained 23%, but has seen its business loans surge, while its overall loan portfolio has been swelling, in part due to its acquisition of 37 banks from HSBC. Bears worry about shrinking revenue, though, and while its valuation may seem attractive, the company hasn't been growing briskly and doesn't get high marks for efficiency. The stock recently yielded 2.1%. It recently brought its credit card portfolio in-house in partnership with MasterCard. (Huntington Bancshares also plans to set up credit card operations in-house.)
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Genworth Financial (NYSE:GNW) gained just 1% as it tries to turn itself around, in part by planning to distance itself from its mortgage insurance business. Its long-term care insurance is also not a great profit driver lately, despite some competitors having exited that market.
The big picture
Demand for financial services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.