With bullish call buyers surfacing in XLF (SPDR Financials) in the options market on weakness in the sector on Thursday, we have an opportunity to examine broad based large cap oriented sector exchange traded funds in the space more closely.

XLF is a market cap weighted product based on the S&P 500 Financials Select Index. Two other market cap weighted funds in this space include IYF (iShares DJ U.S. Financial Sector) and VFH (Vanguard Financials). IYF tracks a Dow Jones Financials sector index while Vanguard follows an MSCI methodology. [Financial ETFs Could be New Market Leader]

There are a few alternatives to market cap for those managers whom may be looking for alternatives to beta exposure to the sector. First up is FXO (First Trust Financials AlphaDEX), which utilizes a quantitative/fundamental screening methodology to select financials equities from the Russell 1000 Index for inclusion in the portfolio.

PFI (PowerShares Dynamic Financials) also uses a fundamentally screened approach, selecting equities in the sector from criteria such as fundamental growth, stock valuation, timeliness, and risk. Finally, RYF (Rydex S&P Equal Weight Financials) tracks the S&P 500 Financials Index much like XLF does, however the entire portfolio is equally weighted as opposed to giving larger weightings to those names with the highest market capitalizations (which is calculated by taking a stock’s price multiplied by the shares outstanding).

How have these various financials ETFs fared? PFI leads the pack year to date, down 6.25%, followed by FXO (-10.19%), IYF (-15.24%), RYF (-15.34%), VFH (-16.44%), and XLF (-18.30%).

Over longer periods of time, i.e. a 5 year time horizon, we see that the fundamental/quantitative screened approach in the financial sector is demonstrating the potential ability to beat the index benchmarks as well as PFI is down 30.35% and FXO has lost 34.56% while the benchmark itself, XLF, has lost 64.01%.

PowerShares Dynamic Financials

For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.