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Should You Invest in the Invesco KBW High Dividend Yield Financial ETF (KBWD)?

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Launched on 12/02/2010, the Invesco KBW High Dividend Yield Financial ETF (KBWD - Free Report) is a passively managed exchange traded fund designed to provide a broad exposure to the Financials - Broad segment of the equity market.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Sector ETFs also provide investors access to a broad group of companies in particular sectors that offer low risk and diversified exposure. Financials - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 15, placing it in bottom 6%.

Index Details

The fund is sponsored by Invesco. It has amassed assets over $390.32 million, making it one of the average sized ETFs attempting to match the performance of the Financials - Broad segment of the equity market. KBWD seeks to match the performance of the KBW Nasdaq Financial Sector Dividend Yield Index before fees and expenses.

The KBW Nasdaq Financial Sector Dividend Yield Index is a dividend yield weighted index seeking to reflect the performance of approximately 24 to 40 publicly listed financial companies engaged in the business of providing financial services and products, including banking, insurance and diversified financial services, in the US.

Costs

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for this ETF are 3.84%, making it one of the most expensive products in the space.

It has a 12-month trailing dividend yield of 9.88%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Looking at individual holdings, Armour Residential Reit Inc accounts for about 4.73% of total assets, followed by Orchid Island Capital Inc and Annaly Capital Management Inc.

The top 10 holdings account for about 37.75% of total assets under management.

Performance and Risk

Year-to-date, the Invesco KBW High Dividend Yield Financial ETF has gained about 16.56% so far, and is up roughly 9.77% over the last 12 months (as of 07/19/2023). KBWD has traded between $13.63 and $18.54 in this past 52-week period.

The ETF has a beta of 1.41 and standard deviation of 21.74% for the trailing three-year period, making it a medium risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco KBW High Dividend Yield Financial ETF sports a Zacks ETF Rank of 4 (Sell), which is based on expected asset class return, expense ratio, and momentum, among other factors. KBWD, then, is not the best option for investors seeking exposure to the Financials ETFs segment of the market. However, there are better ETFs in the space to consider.

Vanguard Financials ETF (VFH - Free Report) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF - Free Report) tracks Financial Select Sector Index. Vanguard Financials ETF has $8.30 billion in assets, Financial Select Sector SPDR ETF has $34.24 billion. VFH has an expense ratio of 0.10% and XLF charges 0.10%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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