How to Harness the Financial Sector's Recovery With ETFs | ETF Trends

Sector exchange traded funds (ETFs) are a good way for investors to seek out niches in order to harness performance in a specific area, and the financial sector is no exception. Since the market’s low on March 9, the overall sector is up about 140%.

Although many investors shudder at the mention of the word, the financial sector will one day be in favor again. The financial services sector has been a standout, reports Money and Markets on iStock Analyst.

  • iShares Dow Jones U.S. Financial Services (NYSEArca: IYG): up 21.6% year-to-date

The rally may not be indefinite, since banks still have their share of problems. But there’s still opportunity there, since financial ETFs are still about 50% off their 2007 highs. (Play the capital markets recovery).

There are about 34 ETFs that track the financial sector, including:

  • SPDR Select Sector Financial (NYSEArca: XLF): up 23.7% year-to-date

  • iShares Dow Jones U.S. Financial (NYSEArca:  IYF): up 20.5% year-to-date

  • Vanguard Financials (NYSEArca: VFH): up 18.8% year-to-date

XLF is focused exclusively on large-cap financial stocks. IYF and VFH own some smaller companies as well, but all three are well-diversified within the financial sector.

Make sure that you are well educated on market trends and follow the trend lines, especially as times are tenuous for financial companies as they work to get their books back in order. We follow the 200-day moving average as both the entry and exit point. This eliminates any emotional interference and keeps losses to a minimum. Read more about trend following in The ETF Trend Following Playbook.

For more stories about the financial sector, visit our financial category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.