5 Strategic-Beta ETFs Getting a Big Boost From the Rally in Financials

Financial stocks have raced higher in the final months of 2024, giving some funds with heavy weightings in the sector a significant boost.

The Morningstar US Financial Services Index has gained 36.7% in the year to date, significantly surpassing the broader Morningstar US Market Index’s 29.1% return. Financials are the third-best-performing sector in 2024, just behind technology and communications services.

The sector’s gains have been especially strong since Election Day, as expectations of looser regulation under Republican control of the White House and Congress have boosted bank and other financial stocks. The US Financial Services Index rose 8% the day after the election (double the broader market’s rise), and it’s climbed another 0.7% since.

Screening for ETFs With Big Financial Holdings

We screened diversified US stock ETFs for those with the highest allocations to financials. Funds with fewer than $10 million in assets under management were excluded. The five that came out on top each fall under the umbrella of strategic beta—funds based on broad market-cap-weighted indexes that make active bets against those indexes.

Here are five funds that have gotten a significant lift from the rally in financials:

• SPDR SSGA US Small Cap Low Volatility ETF SMLV
• iShares Focused Value Factor ETF FOVL
• iShares US Small Cap Value Factor ETF SVAL
• First Trust Rising Dividend Achievers ETF RDVY
• First Trust Dorsey Wright Momentum & Value ETF DVLU

Financials-Heavy Funds

These funds are not intentionally focused on financials, but their respective investment strategies have led them in the same direction. All the funds had substantially larger weightings for financials than their categories.

The biggest difference between a fund and its category was the SPDR SSGA US Small Cap Low Volatility ETF, whose 69% weighting in financials was 46 percentage points higher than the small-value category average of 23%. One of the fund’s star holdings is Virtu Financial VIRT, up 84.9% this year, which contributed 0.9 percentage points to the fund’s year-to-date returns. The SPDR ETF has returned 25% in the year to date, far higher than the 17.2% average for the small-value category.

According to Morningstar Direct, financial services stocks contributed anywhere from 45% to 76% of each fund’s year-to-date returns. Out of the $159 million iShares Small Cap Value Factor ETF’s 18% return so far this year, 12.7 percentage points were from the sector.

Looking at the $26 million iShares Focused Value ETF, financial services stocks were responsible for 20.6 percentage points of its 30.5% return. Out of that, 2 percentage points came from online broker Interactive Brokers Group IBKR, which is up 83.2% this year.