That financial services exposure could prove rewarding if the Federal Reserve decides to boost interest rates next year because many smaller financial firms are regional and community banks that have seen net interest margins suppressed by years of low rates.

“Although the timing of a Federal Reserve rate hike is debatable, the US labor market is tightening and higher rates could improve the net interest margin and profitability for some financial stocks,” notes PowerShares.

XSLV’s weights to utilities, staples and other dividend-paying sectors, such as industrials, is enough that the ETF’s dividend yield looks impressive compared to broader small-cap indices.

“On a side note, XSLV has a 30-day SEC yield of 2.32% compared to dividend yield of 1.35% for the S&P 600 Index.3 The higher yield could help if small caps go through a period of sluggish performance,” according to PowerShares. [Dividends Buffer Small-Cap Weakness]

Chart Courtesy: Invesco PowerShares