Investors choosing between the iShares U.S. Regional Banks ETF (NYSEMKT:IAT) and Fidelity MSCI Financials Index ETF (NYSEMKT:FNCL) may weigh IAT’s narrow industry concentration and higher yield against FNCL’s broad sector exposure and lower cost.
Both funds provide exposure to the financial sector, but their scopes differ significantly. One targets a specific niche within the banking industry, while the other serves as a broad-market representative for the entire financial industry. This comparison examines how these distinct strategies impact performance, risk, and costs.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
FNCL is considerably more affordable, with an expense ratio of 0.08% compared to IAT’s 0.38%. However, IAT provides a higher payout, featuring a trailing-12-month dividend yield of 2.82% versus 1.67% for the Fidelity fund.
Performance & risk comparison
What’s inside
The Fidelity MSCI Financials Index ETF provides broad exposure across the financial sector, including financial services at 97.%, technology at 2%, and real estate at 1%. It maintains a diversified portfolio of 404 holdings, and its largest positions include JPMorgan Chase & Co. (NYSE:JPM) at 10.04%, Berkshire Hathaway (NYSE:BRKB) at 8.07%, and Visa (NYSE:V) at 6.41%. Launched in 2013, the Fidelity fund has a trailing-12-month dividend of $1.23 per share and aims to replicate the results of the MSCI USA IMI Financials 25/50 Index.
In contrast, the iShares U.S. Regional Banks ETF is entirely concentrated in the financial services sector with a 100% allocation to regional banks. Its top holdings include The PNC Financial Services Group (NYSE:PNC) at 14.66%, U.S. Bancorp (NYSE:USB) at 13.99%, and Truist Financial (NYSE:TFC) at 9.96%. Launched in 2006, the iShares fund manages a more focused portfolio of 31 positions and has paid $1.62 per share over the trailing 12 months. Since IAT limits itself to regional players, it lacks the exposure to insurance and payment processors found in FNCL.
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What this means for investors
Investors looking for exposure to banking stocks have an interesting choice in the Fidelity MSCI Financials Index ETF (FNCL) and iShares U.S. Regional Banks ETF (IAT). Deciding between them means weighing some key factors against your investing goals.
IAT’s focus on regional banks comes with a far greater dividend yield and one-year return. This fund is a compelling choice for income-oriented investors. However, the ETF has a number of downsides.
IAT is more volatile, as demonstrated by its higher beta and max drawdown. It has a low AUM of $622.3 million, which means it lacks the liquidity of the much larger FNCL. Also, IAT has only 31 holdings, so the fund’s performance is dependent on this handful of stocks.
Because FNCL targets companies across the financial sector, its holdings of about 400 deliver far greater diversification. Its AUM of more than $2 billion results in tighter bid-ask spreads, saving you money on every transaction.
Since FNCL holds major companies such as Visa and Berkshire Hathaway, the fund offers greater stability than IAT. That comes at the cost of a reduced dividend yield, and the ETF lacks IAT’s stronger one-year growth.
FNCL is best for conservative investors who want low-risk, stable exposure to the banking sector. IAT is for those who want the higher income potential afforded by regional banks, and are comfortable with the greater risk and volatility.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Robert Izquierdo has positions in JPMorgan Chase. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, Truist Financial, U.S. Bancorp, and Visa. The Motley Fool has a disclosure policy.
Which Banking ETF Is Better, Fidelity’s Broader FNCL or iShares IAT’s Regional Bank Focus? was originally published by The Motley Fool
