3 Financial Sector ETFs to examine as interest rates rise 

U.S. Financial Sector: Overview

As the timeless adage goes, there is a cause and effect for everything. And certainly, that’s no different when it comes to macroeconomic policies. When the Fed raises interest rates, banks follow. While the incentive to borrow more money may cool off during rising interest rates, more often than not, the financial sector tends to have greater earnings potential as they are able to charge higher interest rates to clients on mortgages and other loans. To simply put it, as rates go up, so does the cost of new borrowing, which translates into more money for banks. This is a plus for value investors seeking to gain exposure to the financial industry, as balance sheets and net margins might increase given the current market environment. 

3 Financial ETFs to choose from

XLF – (The Financial Select Sector SPDR)

First on the list is the XLF. This ETF seeks to provide investors access to a myriad number of financial firms, including blue-chip bank stocks like Berkshire Hathaway Inc, JPMorgan Chase, Bank of America and Wells Fargo & Company. Additionally, it is diversified not just with banks but also in the insurance industry, consumer finance and capital markets. With more than $30 billion in assets under management and a tiny 0.10% in MER fees, this ETF could potentially enhance investors' portfolios.

IYG – (iShares U.S. Financial Services ETF)

This ETF seeks to provide investors exposure to American investment banks, commercial banks, credit card firms and other companies that provide financial services. A few names you might recognize include Goldman Sachs Group, Visa, Mastercard and JPMorgan Chase. At present, IYG has $1.5 billion in assets under management, while charging investors a reasonably low MER fee of 0.41%.  

KBWB – (Invesco KBWK Bank ETF)

Invesco’s KBWB provides investors with broad exposure to the U.S. bank market. Its holdings include mega-banks like Citigroup Inc, Wells Fargo and Bank of America, as well as regional smaller banks like New York Community Bank and Citizens Financial Group. With 0.35% in management fees and $1.89 billion in assets under management, long-term investors may want to include this in their portfolio for its diversification and passively managed approach to an industry that will always exist.