Banks Ace Fed Stress Test; These ETFs Benefit

June 30, 2017

Average Dividend Yield of S&P 500’s Sectors

Consumer Staples Financials Industrials Utilities S&P 500
2.70% 1.70% 2.10% 3.40% 2.00%

Source: S&P Global, June 23, 2017


Naturally, ETF investors can gain direct exposure to these large-cap financials through the Financial Select Sector SPDR Fund (XLF), the largest such sector ETFs, as well as the Vanguard Financials ETF (VFH), the PowerShares KBWB Bank Portfolio (KBWB) and the SPDR S&P Bank ETF (KBE).

Dividend Funds Benefit As Well

There are also some dividend funds among the winners via the increased return of cash to shareholders. The iShares Core Dividend Growth ETF (DGRO) had a 14% weighting in financials, including many that raised their dividends this week. In addition to top-10 holdings J.P. Morgan and Wells Fargo, U.S. Bancorp and American Express are in that 14%, and similarly hiked their dividends; technology is the largest sector for this ETF.

Meanwhile, the Fidelity Dividend ETF for Rising Rates (FDRR) holds Bank of America, Citi, J.P. Morgan and Wells Fargo within its 9% stake in the financial sector. As its name suggests, this index-based ETF holds dividend payers that have historically performed well during periods of rising bond yields. Information technology and health care stocks are also well-represented.

Though FDRR and DGRO are less than three years old, CFRA has a ranking on them as we leverage our holdings-based analysis. In addition to a review of the ETF’s costs and trading patterns, we assess the valuation and risk attributes of the ETF’s portfolio.

Among active mutual funds, TCW Relative Value Dividend Appreciation recently had a 21% stake in financials, with Citi and J.P. Morgan among its top-10 positions.


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