Financial stocks, banks, insurers, asset managers, make up roughly 13% of the S&P 500. Instead of trying to pick winners in that crowded space, a financial sector ETF lets you own a slice of all of them at once.
But not all financial ETFs are built the same. Some focus on large banks. Others target regional banks or global financials. Here are the top picks to know in 2026.
This article is for educational purposes only and is not investment advice. ETF performance is not guaranteed, and investing involves risk.
Our Top Picks
1. XLF - Financial Select Sector SPDR Fund
XLF is the largest and most-traded financial ETF on the market, managed by State Street. It tracks the S&P 500 Financial Sector index, which means you get the biggest U.S. financial companies, including JPMorgan Chase, Berkshire Hathaway, Visa, and Mastercard.
- Expense ratio: 0.09%
- Top holdings: JPMorgan Chase, Berkshire Hathaway, Visa, Mastercard, Bank of America
- Best for: Broad U.S. large-cap financial exposure
XLF is highly liquid, meaning you can buy and sell with tight bid-ask spreads. The inclusion of payment companies like Visa and Mastercard makes it more diversified than a pure banking fund.
2. VFH - Vanguard Financials ETF
VFH tracks the MSCI US Investable Market Financials 25/50 index, which covers a wider range of companies than XLF, including mid- and small-cap financials.
- Expense ratio: 0.10%
- Top holdings: Similar to XLF but with broader mid-cap coverage
- Best for: Investors who want more complete U.S. financial market exposure
The slightly lower turnover and broader holdings make VFH a solid long-term holding.
3. KRE - SPDR S&P Regional Banking ETF
KRE focuses specifically on U.S. regional banks, companies like Regions Financial, Comerica, and KeyCorp. Regional banks tend to be more sensitive to interest rate changes and local economic conditions.
- Expense ratio: 0.35%
- Best for: Investors who want targeted regional bank exposure
- Risk note: More volatile than broad financial ETFs; regional banks can be harder hit during credit stress
4. KBE - SPDR S&P Bank ETF
KBE tracks a broader universe of U.S. banking companies, including both large and regional banks. It uses an equal-weight methodology, so smaller banks have more influence than in a market-cap-weighted fund.
- Expense ratio: 0.35%
- Best for: Investors who want equal exposure across bank sizes
5. IYG - iShares U.S. Financial Services ETF
IYG focuses on financial services companies, leaning heavily into banks and investment firms. It has a tighter focus than XLF, excluding insurance companies and payment networks.
- Expense ratio: 0.39%
- Best for: Investors who want concentrated exposure to core banking and asset management
You can buy all of these ETFs on Robinhood with no commission and no account minimum. Robinhood makes it easy to purchase fractional shares if you want to invest a specific dollar amount rather than buying whole shares.
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How to Choose the Right Financial ETF
The best pick depends on what you are trying to accomplish.
If you want broad, low-cost exposure, XLF or VFH are the most straightforward choices. Both have very low expense ratios and track well-established indexes. For a primer on how sector ETFs fit into a broader portfolio, see our ETF vs stock guide.
If you want to bet on rising interest rates, regional bank ETFs like KRE or KBE tend to benefit more from rate increases than large diversified funds. Banks earn more when the spread between deposit rates and lending rates widens.
If you prefer specific sub-sectors, IYG narrows the focus to financial services companies rather than the full sector.
Watch Out for Sector Concentration Risk
Financial ETFs give you diversification within the sector, but you are still concentrated in a single industry. A banking crisis, a regulatory crackdown, or a sharp rise in loan defaults could hit these funds harder than a broad market ETF.
Most financial advisors suggest keeping sector-specific ETFs as a portion of a broader, diversified portfolio rather than as a core holding. If you're new to ETF investing entirely, start with our guide on how to buy ETFs before diving into sector funds.
Expense Ratios Matter
A 0.09% expense ratio on XLF means you pay $9 per year on a $10,000 investment. KRE's 0.35% ratio costs $35 per year on the same amount. Over decades, that difference compounds. For long-term holdings, lower expenses generally win.
If you plan to hold financial ETFs inside a retirement account, a Roth IRA can shelter your gains from taxes, which is especially valuable for sector bets with higher return potential and higher volatility.
Frequently Asked Questions
What does a financial sector ETF invest in?
Financial sector ETFs invest in companies that operate in finance-related industries. This includes commercial banks, investment banks, insurance companies, asset managers, payment processors, and financial technology firms. The exact mix depends on the index the ETF tracks.
Is XLF a good long-term investment?
XLF has historically tracked the performance of the U.S. financial sector closely, which has had periods of strong growth but also sharp declines (notably in 2008 and 2020). Whether it is a good fit depends on your overall portfolio, risk tolerance, and time horizon. Past performance does not guarantee future results.
How is a financial ETF different from a financial mutual fund?
ETFs trade on an exchange throughout the day like a stock, while mutual funds price only once per day at market close. ETFs generally have lower expense ratios and no minimum investment requirements when purchased as full shares. Both can track the same index.
Can I lose money investing in a financial ETF?
Yes. ETF values rise and fall with the underlying stocks. If banks and financial companies perform poorly, your ETF will likely decline in value. Financial sector ETFs are generally more volatile than total market ETFs, so they carry higher short-term risk.
