Designed to provide broad exposure to the Financials ETFs category of the market, the Invesco KBW High Dividend Yield Financial ETF (KBWD) is a smart beta exchange traded fund launched on 12/02/2010.

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.

A good option for investors who believe in market efficiency, market cap weighted indexes offer 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.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by Invesco, KBWD has amassed assets over $387.17 million, making it one of the average sized ETFs in the Financials ETFs. This particular fund, before fees and expenses, seeks to match the performance of the KBW Nasdaq Financial Sector Dividend Yield Index.

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

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 2.02%, making it one of the most expensive products in the space.

The fund has a 12-month trailing dividend yield of 11.80%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 100% of the portfolio.

When you look at individual holdings, Agnc Investment Corp (AGNC) accounts for about 3.89% of the fund's total assets, followed by Armour Residential Reit Inc (ARR) and Ready Capital Corp (RC).

Its top 10 holdings account for approximately 35.81% of KBWD's total assets under management.

Performance and Risk

So far this year, KBWD has gained about 4.28%, and was up about 10.71% in the last one year (as of 08/26/2024). During this past 52-week period, the fund has traded between $13.12 and $16.26.

The ETF has a beta of 1.43 and standard deviation of 20.96% 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 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.

Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $10.04 billion in assets, Financial Select Sector SPDR ETF has $44.01 billion. VFH has an expense ratio of 0.10% and XLF charges 0.09%.

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.

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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Invesco KBW High Dividend Yield Financial ETF (KBWD): ETF Research Reports

AGNC Investment Corp. (AGNC) : Free Stock Analysis Report

ARMOUR Residential REIT, Inc. (ARR) : Free Stock Analysis Report

Financial Select Sector SPDR ETF (XLF): ETF Research Reports

Vanguard Financials ETF (VFH): ETF Research Reports

Ready Capital Corp (RC) : Free Stock Analysis Report

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