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 (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 (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 (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.