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The Fidelity MSCI Financials Index ETF (NYSEMKT:FNCL) offers a broad, low-cost approach to the financial sector, while the Invesco KBW Bank ETF (NASDAQ:KBWB) provides concentrated exposure to U.S. banking institutions with a higher expense profile.
Choosing between these two ETFs involves a trade-off between broad sector diversification and targeted industry concentration. While both funds operate within the financial sphere, the Invesco ETF isolates the performance of U.S. banks, whereas the Fidelity fund provides a wider lens that includes payments and insurance firms.
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Cost is a primary differentiator in this matchup. The Fidelity fund is significantly more affordable, featuring an expense ratio of just 0.08% compared to the 0.35% charged by the Invesco ETF. While the Fidelity fund costs less to own, the Invesco ETF currently offers a higher payout for income-oriented investors.
Fidelity MSCI Financials Index ETF provides diversified exposure to the broad U.S. financial sector, with a primary focus on financial services at 97%, technology at 2%, and real estate at 1%. Its largest positions include JPMorgan Chase & Co (NYSE:JPM) at 10.33%, Berkshire Hathaway Inc. (NYSE:BRKB) at 8.45%, and Visa Inc. (NYSE:V) at 7.30%. The fund tracks 404 holdings in total. It was launched in 2013. Fidelity MSCI Financials Index ETF has paid $1.29 per share over the trailing 12 months, which on its recent ~$77.50 share price works out to a 1.7% yield.
Invesco KBW Bank ETF offers a much more concentrated approach, dedicating 100% of its weight to financial services firms specifically within the banking industry. Its largest positions include Wells Fargo & Co (NYSE:WFC) at 8.39%, JPMorgan Chase & Co at 8.11%, and Morgan Stanley (NYSE:MS) at 7.72%. This fund holds just 26 securities. It was launched in 2011. Invesco KBW Bank ETF has paid $1.87 per share over the trailing 12 months, which on its recent ~$87.60 share price works out to a 2.1% yield.
For more guidance on ETF investing, check out the full guide at this link.
Neither FNCL nor KBWB is a diversified fund, and both can be volatile, but each has performed well over time. Here's when one may be a better buy for you than the other.
You want more than bank stocks: FNCL tracks a broad financial index that includes large-, mid-, and small-cap companies across the sector, while KBWB focuses solely on U.S. banks.
You prioritize lower fees: The Fidelity MSCI Financials Index ETF's expense ratio is 0.08%, compared with Invesco's 0.35%. That's 0.27 percent more to invest rather than spend on fees.
You expect banks to outperform other financial firms: When that's the case, KBWB's concentration on banks gives you a more direct way to express your faith in bank performance.
You want targeted exposure: The groups represented in KBWB's underlying index provide exposure to major U.S. banks, regional banks, and thrifts. While this exposes you to greater banking-specific risks -- such as credit losses and interest rate sensitivity -- the fund's narrower portfolio can amplify gains if banks perform well.
Neither fund is a broad-market investment. However, each has distinct advantages. If you're seeking broader financial-sector exposure with more holdings and lower fees, FNCL may be just right for you. If you're bullish on U.S. banks and are willing to accept greater concentration and bank-specific risks, KBWB is likely to be a better choice.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Visa. The Motley Fool has a disclosure policy.
Financials vs. Banks: Which ETF Is the Smarter Buy — Fidelity or Invesco? was originally published by The Motley Fool
