Financial ETFs are testing their 2013 highs as they try to take back the leadership they enjoyed last year. A high-yield ETF for the sector might be worth a look for investors who also want to boost income on the side.
The PowerShares KBW High Dividend Yield Financial Portfolio (NYSEARCA:KBWD) has been outperforming other broad financial sector ETFs, gaining 14.4% year-to-date, compared with the 10.8% increase for the Financial Select Sector SPDR Fund (NYSEARCA:XLF).
Moreover, KBWD offers an attractive 7.78% 30-day SEC yield, whereas XLF comes with a 1.77% dividend yield.
KBWD tracks the Financial Sector Dividend Yield Index, which follows a dividend yield weighted methodology comprised of financial firms. Consequently, the financial dividend ETF has a heavier tilt toward smaller companies - mid-caps make up 30.6% of the fund and small-caps account for 64.6% of the fund. While the asset tilt helps the fund perform well during quick growth spurts, these stocks are more volatile in nature.
KBWD's top holdings include American Capital Agency 6.2%, BGC Partners 6.1%, Invesco Mortgage Capital 5.0%, Chimera Investment 4.8% and Annaly Capital Management 4.7%.
In contrast, XLF follows a more traditional approach to the financials sector, with giant-caps making up 47.9% of the overall portfolio, large-caps 41.3% and mid-caps 10.7%. The fund's largest holdings include Berkshire Hathaway 8.6%, JPMorgan Chase 8.2%, Wells Fargo 8.1% Citigroup 6.2% and Bank of America 5.7%.
KBWD's sector allocations include financials 88.2%, industrials 1.7% and investment companies 10.1%. XLF's sub-sector allocations include insurance 26.2%, diversified financials services 23.6%, commercial banks 17.6%, real estate investment trusts 14.1%, capital markets 12.7%, consumer finance 5.8%, thrifts & mortgage finance 0.4% and real estate management & development 0.3%.
Bank stocks rose Tuesday, led by Bank of America (NYSE:BAC), which was up over 3%, after Morgan Stanley upgraded the bank to overweight due to lower expenses and higher mortgage fees, MarketWatch reports. The overall better-than-expected earnings season has helped prop up the sector.
PowerShares KBW High Dividend Yield Financial Portfolio
Max Chen contributed to this article.