Is it worth investing in the Vanguard Financials ETF (VFH)?

Vanguard Financials ETF (VFH) was launched on January 26, 2004 and is a passively managed, exchange-traded fund designed to provide broad exposure to a broad segment of the Financials equity market.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility and tax efficiency; they are also a great tool for long-term investors.

Investor-friendly sector ETFs provide many opportunities to gain low risk and diversified exposure to a wide range of companies in specific sectors. Financials – Broad is one of the 16 broad Zacks Industry Sectors. It currently ranks 12th, in the bottom 25%.

Index details

The fund’s sponsor is Vanguard. It has accumulated assets of more than $9.19 billion, making it one of the largest ETFs trying to match the performance of the broader Financials share market segment. VFH seeks to match the performance of the MSCI US Investable Market Financials 25/50 Index before fees and expenses.

The MSCI US Investable Market Index (IMI)/Financials 25/50 measures the return on investment in financial sector stocks.

Costs

When considering an ETF’s total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts over the long term if all other factors remain constant.

The annual operating costs of this ETF are 0.10%, making it one of the cheapest products on the market.

Its trailing 12-month dividend yield is 1.88%.

Sector exposure and largest assets

Although ETFs offer diversified exposure that minimizes the risk of a single stock, investors should also look at the fund’s actual holdings. Fortunately, most ETFs are very transparent products that disclose their holdings every day.

This ETF has the heaviest allocation in the financial sector – approximately 100% of the portfolio.

Looking at individual holdings, Jpmorgan Chase & Co (JPM) accounts for approximately 8.32% of total assets, followed by Berkshire Hathaway Inc (BRK/B) and Mastercard Inc (MA).

The 10 largest holdings account for approximately 43.71% of total assets under management.

Performance and risk

The ETF gained approximately 9.21%, and this year and last year (as of April 6, 2024) it increased by approximately 28.95%. Over the last 52 weeks, VFH has traded between $75.97 and $103.

The ETF has a beta of 1.09 and a standard deviation of 19.80% for the trailing three-year period, making it a medium-risk pick in this area. With approximately 396 shares, it effectively diversifies company-specific risk.

Alternatives

The Vanguard Financials ETF carries a Zacks ETF Rank #1 (Strong Buy), which is based on asset class expected return, expense ratio and momentum, among other factors. For this reason, VFH is a great option for investors looking for exposure to the financial ETF market segment. There are other additional ETFs on the market that investors may also consider.

The IShares US Financials ETF (IYF) tracks the Dow Jones US Financials Index and the Financial Select Sector SPDR ETF (XLF) tracks the Financial Select Sector Index. The IShares US Financials ETF has $2.65 billion in assets and the Financial Select Sector SPDR ETF has $38.50 billion. IYF has an expense ratio of 0.40% and XLF charges 0.09%.

Bottom line

To learn more about this product and other ETFs, find products that match your investment goals, and read articles on the latest developments in the world of ETF investing, visit the Zacks ETF Center.

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