Financials Sector: Overview and Funds

The financials sector is composed of companies that provide financial services to other companies and/or to consumers. This includes services such as loans, credit, mortgage, insurance, wealth management and real estate. Within the financials sector, there are four industry groups of products and services: banks, insurance, real estate and diversified financial services.

These four industry groups are further divided into industries and sub-industries. Companies are aligned to the industry and sub-industry that best fits the company, and this is identified based on the company’s core products and services or the products and services that produce the most revenue.

Banks

The banking industry group includes companies that consumers commonly think of as banks as well as institutions that specialize in mortgages, such as savings and loans associations and mortgage lenders. 

IndustrySub-IndustryDescription
Banks Diversified Banks This sub-industry includes large, geographically diverse banks that have a national presence. Their revenues must come mostly from normal banking activities, they must have a significant presence in consumer banking and small to medium business lending and they must provide a diverse range of services.
Regional Banks This includes commercial banks with revenue coming mostly from normal banking activities. They must also have a significant presence in consumer banking and small to medium business lending. These banks do not have a national presence, but instead operate within a specific region or state.
Thrifts & Mortgage Finance Thrifts & Mortgage Finance Financial institutions that provide mortgages and related services. This includes savings and loans institutions, mortgage lenders, building societies, institutions whose assets are mostly mortgage related and companies that provide insurance to mortgage lenders.

Examples of banks and thrifts/mortgage financial institutions include Wells Fargo, Bank of America, JPMorgan Chase & Co. and Citigroup.

Insurance

The insurance industry group includes insurance firms, brokers, and companies specializing in reinsurance across all lines of insurance. Reinsurance is a special type of insurance that insurance companies purchase from other companies, called reinsurers, to better manage their risk. Reinsurance protects the insurance company against bankruptcy or failure resulting from large claims or catastrophes.

IndustrySub-IndustryDescription
Insurance Insurance Brokers Insurance and reinsurance brokerages.
Life & Health Insurance Companies that primarily provide life, disability, indemnity or supplemental health insurance to businesses and consumers. This excludes managed care companies, such as Health Maintenance Organizations (HMOs), which are classified in the health care sector.
Multi-line Insurance Insurance companies that provide a diverse range of insurance to businesses and consumers, including life, health, property and casualty insurance.
Property & Casualty Insurance Insurance companies that primarily provide property and casualty insurance to businesses and consumers.
Reinsurance Insurance companies that primarily provide reinsurance to other insurers.

Examples of companies within the insurance industry group include AIG, MetLife, Aflac, Chubb and Progressive.

Real Estate

Real estate is divided into two major industries: Real Estate Investment Trusts (REITS) and real estate management and development. A REIT is a company that owns, operates or finances real estate that produces income. This could be office buildings, apartment buildings, shopping malls, hotels or even hospitals. The real estate management and development industry includes companies that lease and sell real estate as well as real estate agents and brokers.

IndustrySub-IndustryDescription
Real Estate Investment Trusts (REITs) Diversified REITs Real estate investment trusts or companies that have operations across two or more different types of properties.
Industrial REITs Trusts or companies that own and/or operate industrial properties, such as warehouses or distribution facilities.
Mortgage REITs Trusts or companies that service, create, purchase or securitize residential or commercial mortgages. This includes trusts that invest in mortgage-backed securities and other related assets. Securitization is the process of converting an asset, such as a mortgage loan, into a financial instrument, or security, that can be sold to investors.
Hotel & Resort REITs Trusts or companies that own and/or operate hotels and resorts.
Office REITs Trusts or companies that own and/or operate office buildings and properties.
Health Care REITs Trusts or companies that own and/or operate properties that are related to health care. This includes hospitals, nursing homes and assisted living facilities.
Residential REITs Trusts or companies that own and/or operate residential properties. This includes multi-family homes, apartment buildings, manufactured homes and student housing/dormitories.
Retail REITs Trusts or companies that own and/or operate shopping malls, outlet malls and shopping centers.
Specialized REITs Trusts or companies that own and/or operate properties that are not classified elsewhere, including storage properties and REITs whose revenue does not primarily come from real estate rental and leasing.
Real Estate Management & Development Diversified Real Estate Activities Companies that provide diverse real estate services, including development, sales or management. No single service provided by the companies makes up the majority of their revenue.
Real Estate Operating Companies Companies that lease or manage real estate properties.
Real Estate Development Companies that develop and sell real estate. This excludes companies that build single-family houses.
Real Estate Services Real estate agents, brokers and appraisers.

Examples of REITs and other real estate management companies include Simon Property Group, Tanger Factory Outlets, Extra Space Storage, RE/MAX and Coldwell Banker. 

Diversified Financial Services

The diversified financial services industry group is a catchall classification for any financial institutions that do not fit into the other three categories. This industry group includes institutions that provide specialized financial services, such as stock exchanges, and companies that provide consumer financial services, such as credit cards. It also includes financial institutions whose activities are mainly within capital markets, such as asset management and investment banking.

IndustrySub-IndustryDescription
Diversified Financial Services Other Diversified Financial Services Financial institutions that provide a diverse range of financial services and/or have some interest in a wide range of financial services, including banking, insurance and capital markets. No single service they provide makes up the majority of their revenue.
Multi-Sector Holdings Companies with diverse holdings across three or more financial sectors, none of which makes up the majority of profit or sales.
Specialized Finance Institutions that provide specialized financial services, including credit rating agencies and stock exchanges. The majority of their revenue must come from one specialized service.
Consumer Finance Consumer Finance Institutions that provide consumer financial services, including personal lines of credit, credit cards, pawn shops, lease financing and travel-related money services. This excludes thrift and mortgage institutions, which are classifed in the bank industry above.
Capital Markets Asset Management & Custody Banks Financial institutions that provide investment management or custody and securities fee-based services, including mutual funds, closed-end funds and unit investment trusts. This excludes banks and other institutions that are primarily involved in other financial services.
Investment Banking & Brokerage Financial institutions that engage in investment banking and brokerage services, including debt underwriting, mergers and acquisitions, securities lending and advisory services. This excludes banks and other institutions that are primarily involved in other financial services.
Diversified Capital Markets Financial institutions that engage in a diverse set of capital market activities. This means they have a significant presence in at least two of the following activities: large business lending, investment banking, brokerage or asset management.

Examples of companies that provide diversified financial services include Equifax, American Express, Goldman Sachs, NASDAQ, Berkshire Hathaway and BlackRock.

Financials Sector ETFs and Mutual Funds

Below are over 110 different mutual funds, index funds and ETFs that cover companies within the financials sectors. Many of the funds track the entire financials sector, but some focus on specific industries like REITs or banks. A majority of the funds track companies within the United States, but some may track globally or within other countries. The expense fees for the funds listed below range from 0.10% to 9.45%.

NameSymbolExpense Ratio
Vanguard Financials ETF VFH 0.10%
Vanguard Financials Index Fund Admiral Shares VFAIX 0.10%
Fidelity MSCI Financials Index ETF FNCL 0.12%
Financial Services Select Sector SPDR XLFS 0.14%
Real Estate Select Sector SPDR XLRE 0.14%
Financial Select Sector SPDR ETF XLF 0.14%
PowerShares S&P SmallCap Financials ETF PSCF 0.29%
PowerShares KBW Bank ETF KBWB 0.35%
PowerShares KBW Capital Markets ETF KBWC 0.35%
PowerShares KBW Insurance ETF KBWI 0.35%
PowerShares KBW Property & Casualty Insurance ETF KBWP 0.35%
PowerShares KBW Regional Bank ETF KBWR 0.35%
SPDR S&P Bank ETF KBE 0.35%
SPDR S&P Capital Markets ETF KCE 0.35%
SPDR S&P Insurance ETF KIE 0.35%
SPDR S&P Regional Banking ETF KRE 0.35%
Guggenheim S&P 500 Equal Weight Financial ETF RYF 0.40%
SPDR S&P International Financial Sector ETF IPF 0.40%
iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI 0.43%
iShares U.S. Financial Services ETF IYG 0.43%
iShares U.S. Financials ETF IYF 0.43%
iShares U.S. Insurance IAK 0.43%
iShares U.S. Regional Banks ETF IAT 0.43%
iShares Global Financials ETF IXG 0.47%
iShares MSCI Europe Financials Sector Index Fund EUFN 0.48%
Oppenheimer Financials Sector Revenue ETF RWW 0.49%
JHancock Multifactor Financials ETF JHMF 0.50%
First Trust NASDAQ ABA Community Bank ETF QABA 0.60%
PowerShares DWA Financial Momentum ETF PFI 0.60%
First Trust Financials AlphaDEX Fund ETF FXO 0.64%
Global X China Financials ETF CHIX 0.65%
Davis Financial Fund Class Y DVFYX 0.71%
Fidelity® Select Financial Services Portfolio FIDSX 0.78%
Fidelity® Select Banking Portfolio FSRBX 0.79%
Fidelity® Select Brokerage & Investment Management Portfolio FSLBX 0.79%
Fidelity® Select Insurance Portfolio FSPCX 0.81%
Fidelity Advisor® Financial Services Fund Class I FFSIX 0.84%
UBS ETRACS Wells Fargo Business Development Company Index ETN BDCS 0.85%
UBS ETRACS Wells Fargo Business Development Company Index ETN Series B BDCZ 0.85%
Davis Financial Fund Class A RPFGX 0.86%
T. Rowe Price Financial Services Fund PRISX 0.86%
Fidelity® Select Consumer Finance Portfolio FSVLX 0.88%
Schwab Financial Services Fund SWFFX 0.90%
DMS NASDAQ India Bank Index Investor DIIBX 0.96%
Franklin Mutual Financial Services R6 FMFVX 0.96%
Blue Chip Investor Fund BCIFX 1.00%
Putnam Global Financial Fund Class Y PGFYX 1.03%
Prudential Financial Services Fund Class Z PFSZX 1.05%
1919 Financial Services Fund Class I LMRIX 1.05%
Franklin Mutual Financial Services Fund Class Z TEFAX 1.13%
Hennessy Small Cap Financial Fund Institutional Class HISFX 1.17%
Fidelity Advisor® Financial Services Fund Class A FAFDX 1.17%
Hennessy Large Cap Financial Fund Institutional Class HILFX 1.19%
Diamond Hill Financial Long-Short Fund Class I DHFSX 1.23%
John Hancock Financial Industries Fund Class A FIDAX 1.24%
AR Capital BDC Income Advisor Class BDCPX 1.25%
John Hancock Regional Bank Fund Class A FRBAX 1.26%
Emerald Banking and Finance Fund Institutional Class HSSIX 1.27%
Putnam Global Financial Fund Class A PGFFX 1.28%
Royce Global Financial Services Fund Institutional Class RGFIX 1.29%
Rydex Banking Fund Class Investor RYKIX 1.34%
Rydex Financial Services Fund Class Investor RYFIX 1.34%
Prudential Financial Services Fund Class A PFSAX 1.35%
Alpine Financial Services Fund Institutional ADFSX 1.38%
Franklin Mutual Financial Services  Fund Class A TFSIX 1.41%
Kinetics Market Opportunities Fund Class Institutional KMKYX 1.44%
1919 Financial Services Fund Class A SBFAX 1.45%
Fidelity Advisor® Financial Services Fund Class T FAFSX 1.45%
ICON Financial Fund Class S ICFSX 1.49%
Royce Global Financial Services Fund Service Class RYFSX 1.49%
Hennessy Small Cap Financial Fund Investor Class HSFNX 1.50%
AR Capital BDC Income Fund Class A BDCAX 1.50%
Diamond Hill Financial Long-Short Fund Class A BANCX 1.50%
Putnam Global Financial Fund Class R PGFRX 1.53%
Prudential Financial Services Fund Class R PSSRX 1.55%
Hennessy Large Cap Financial Fund Investor Class HLFNX 1.57%
Emerald Banking and Finance Fund Investor Class FFBFX 1.58%
Rydex Financial Services Fund Class A RYFNX 1.59%
Emerald Banking and Finance Fund Class A HSSAX 1.60%
Rydex Banking Fund Class A RYBKX 1.60%
Burnham Financial Services Fund Class A BURKX 1.61%
Alpine Financial Services Fund Class A Shares ADAFX 1.63%
Kinetics Market Opportunities Fund No Load Class KMKNX 1.64%
ICON Financial Fund Class A ICFAX 1.75%
Davis Financial Fund Class C DFFCX 1.75%
Putnam Global Financial Fund Class M PGFMX 1.78%
Rydex Banking Fund Class H RYKAX 1.85%
Rydex Financial Services Fund Class H RYFAX 1.85%
Kinetics Market Opportunities Fund Advisor Class A KMKAX 1.89%
Fidelity Advisor® Financial Services Fund Class C FAFCX 1.90%
John Hancock Financial Industries Fund Class C FIDCX 1.95%
Davis Financial Fund Class B DFIBX 1.96%
Fidelity Advisor® Financial Services Fund Class B FAFBX 1.96%
John Hancock Regional Bank Fund Class B FRBFX 1.96%
John Hancock Regional Bank Fund Class C FRBCX 1.97%
John Hancock Financial Industries Fund Class B FIDBX 1.98%
Putnam Global Financial Fund Class C PGFDX 2.03%
Putnam Global Financial Fund Class B PGFOX 2.03%
Prudential Financial Services Fund Class B PUFBX 2.05%
Prudential Financial Services Fund Class C PUFCX 2.05%
PowerShares Global Listed Private Equity ETF PSP 2.09%
1919 Financial Services Fund Class C SFSLX 2.13%
Franklin Mutual Financial Services Fund Class C TMFSX 2.13%
Emerald Banking and Finance Fund Class C HSSCX 2.25%
AR Capital BDC Income Fund Class C BDCCX 2.25%
Diamond Hill Financial Long-Short Fund Class C BSGCX 2.25%
Rydex Banking Fund Class C RYKCX 2.35%
Rydex Financial Services Fund Class C RYFCX 2.35%
Burnham Financial Services Fund Class C BURNX 2.36%
Kinetics Market Opportunities Fund Advisor Class C KMKCX 2.39%
ProShares Global Listed Private Equity PEX 2.98%
Saratoga Financial Services Portfolio Fund Class Institutional SFPIX 3.00%
PowerShares KBW High Dividend Yield Financial ETF KBWD 3.08%
Saratoga Financial Service Portfolio Fund Class A SFPAX 3.40%
Saratoga Financial Service Portfolio Fund Class C SFPCX 4.00%
Market Vectors BDC Income ETF BIZD 9.45%

When you choose to invest in a fund, you should consider the investing strategy, fees and loads, previous returns and size of the fund as well as your own personal portfolio and strategy. 

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