The Invesco KBW High Dividend Yield Financial ETF (KBWD) was launched on 12/02/2010, and is a smart beta exchange traded fund designed to offer broad exposure to the Financials ETFs category of the U.S. equity market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
The fund is managed by Invesco, and has been able to amass over $336.91 M, which makes it one of the average sized ETFs in the Financials ETFs. 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.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Operating expenses on an annual basis are 0.35% for KBWD, making it one of the cheaper products in the space.
The fund has a 12-month trailing dividend yield of 8.92%.
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.
This ETF has heaviest allocation in the Financials sector - about 98.10% of the portfolio.
Taking into account individual holdings, Orchid Island Capital Inc (ORC) accounts for about 5.56% of the fund's total assets, followed by Cys Investments Inc (CYS) and Western Asset Mortgage Capital Corp (
WMC Quick Quote WMC - Free Report) .
The top 10 holdings account for about 42.83% of total assets under management.
Performance and Risk
The fund's year-to-date return has added about 4.30%, and is up roughly 5.34% in the last one year (as of 07/11/2018). KBWD has traded between $21.66 and $24.46 in the past 52-week period.
The fund has a beta of 0.75 and standard deviation of 13.96% for the trailing three-year period, which makes KBWD a medium choice in this particular space. With about 38 holdings, it has more concentrated exposure than peers.
Invesco KBW High Dividend Yield Financial ETF is a reasonable option for investors seeking to outperform the Financials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
VIPERS-FINANCL (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR Fund (XLF) tracks Financial Select Sector Index. VIPERS-FINANCL has $8.17 B in assets, Financial Select Sector SPDR Fund has $30.34 B. VFH has an expense ratio of 0.10% and XLF charges 0.13%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.
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.