Financial ETFs: Look Under the Hood to Protect Yourself

April 29th at 6:00am by Tom Lydon

If you’re an investor in financial exchange traded funds (ETFs), you probably saw your holdings drop when the SEC announced that it would press charges against Goldman Sachs. But depending on which ETFs you held, your exposure to Goldman’s stock selloff would have differed.

According to Ron Rowland of Money and Markets, there are seven ETFs that have 5% or more of their assets in Goldman Sachs (NYSE: GS). These seven, which do not include leveraged ETFs, are:

  • iShares Dow Jones U.S. Broker-Dealers (NYSEArca: IAI) — 11%
  • SPDR KBW Capital Markets (NYSEArca: KCE) — 8%
  • WisdomTree LargeCap Value Fund (NYSEArca: EZY) — 7%
  • WisdomTree LargeCap Growth Fund (NYSEArca: ROI) — 7%
  • iShares Dow Jones U.S. Financial Services (NYSEArca: IYG) — 5%
  • Claymore/Clear Global Exchanges, Brokers & Asset Managers (NYSEArca: EXB) — 5%
  • SPDR Select Sector Financials (NYSEArca: XLF) — 5%

The list goes to show that picking ETFs to invest in is no small matter. All of these funds invest in at least one financial company while targeting vastly different market sectors. Wanting exposure to financials is not enough. You need to pick the ETFs that fit into your investment strategy.

For example, considering the potential for the SEC to press charges against other banks, you may want to reconsider an investment in IAI if your strategy is to invest in financials with a minimal risk profile. Instead, you may consider iShares Dow Jones Regional Banks (NYSEArca: IAT) or KBW Regional Bank (NYSEArca: KRE), which would reduce your exposure to the banks most likely to be hit with lawsuits. First Trust NASDAQ ABA Community Bank (NASDAQ: QABA) is another option with no exposure to the Wall Street behemoths.

When investing in ETFs, make sure to do your homework and understand that all ETFs are not equal, even when they invest in the same companies.

For more stories on ETFs, visit our ETF 101 category.

Sumin Kim contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.