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Is Invesco KBW High Dividend Yield Financial ETF (KBWD) a Strong ETF Right Now?

A smart beta exchange traded fund, the Invesco KBW High Dividend Yield Financial ETF (KBWD) debuted on 12/02/2010, and offers broad exposure to the Financials ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by Invesco, and has been able to amass over $507.48 million, which makes it one of the average sized ETFs in the Financials ETFs. This particular fund seeks to match the performance of the KBW Nasdaq Financial Sector Dividend Yield Index before fees and expenses.

The KBW Nasdaq Financial Sector Dividend Yield Index is a dividend yield weighted index seeking to reflect the performance of approximately 24 to 40 publicly listed financial companies engaged in the business of providing financial services and products, including banking, insurance and diversified financial services, in the US.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for this ETF are 1.24%, making it one of the most expensive products in the space.

The fund has a 12-month trailing dividend yield of 6.80%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

For KBWD, it has heaviest allocation in the Financials sector --about 98.30% of the portfolio.

Taking into account individual holdings, Orchid Island Capital Inc (ORC) accounts for about 5.75% of the fund's total assets, followed by Newtek Business Services Corp (NEWT) and Armour Residential Reit Inc (ARR).

Its top 10 holdings account for approximately 39.38% of KBWD's total assets under management.

Performance and Risk

The ETF has added about 36.73% so far this year and was up about 43.67% in the last one year (as of 11/18/2021). In the past 52-week period, it has traded between $15.60 and $21.58.

The ETF has a beta of 1.40 and standard deviation of 32.86% for the trailing three-year period, making it a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco KBW High Dividend Yield Financial ETF is a reasonable option for investors seeking to outperform the Financials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $11.84 billion in assets, Financial Select Sector SPDR ETF has $45.13 billion. VFH has an expense ratio of 0.10% and XLF charges 0.12%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.


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Invesco KBW High Dividend Yield Financial ETF (KBWD): ETF Research Reports
 
ARMOUR Residential REIT, Inc. (ARR): Free Stock Analysis Report
 
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
 
Orchid Island Capital, Inc. (ORC): Free Stock Analysis Report
 
Newtek Business Services Corp. (NEWT): Free Stock Analysis Report
 
Vanguard Financials ETF (VFH): ETF Research Reports
 
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