Financial ETFs Explained – Financial ETF Types

Financial ETF Types:

XLF -Financial Select Sector SPDR

This is your very basic Financial ETFs long (bullish). It tracks some of the major financial stocks such as Goldman Sachs (GS) and Morgan Stanley (MS). This is by far the least volatile financial ETF out of the others I use (outside of the normal volatility we see in the financial stocks today, of course). It also retains the value well in a long period of time. If you want to buy and hold financial firms for the long hawl, go with this.
Pros: Basic way to play the financial index; low volatility; good time value
Cons: Not as volatile if you like volatility and big gains
YTD Performance: -24.84%

UYG – Ultra Financials ProShares Long

This is an “ultra” 2x financials ETF long (bullish) that tracks the financial index 2x (double). NOW we’re talking about volatility. If you think the financials are going up BIG, then buy this ETF and your wallet will get fat very quickly. On the otherhand, if you are wrong, then you need to eat ramen noodles for the next few weeks.
Pros: Leveraged way to play the financial index; high volatility (if you like it)
Cons: Too volatile if you’re wrong; poor time value (due to ETF’s time decay)
YTD Performance: -52.25%

SKF – Ultra Financials Proshares Short

This is an “ultra” 2x financials ETF short (bearish) that tracks the financial index 2x (double). If you are one of the many who believe that the world is going to end soon (starting w/ the banks), then go with this. Every day the banks go down in stock value, your days of eating out at Ruth’s Chris go up. I must warn you though, because this is the ultra ETFs with “time decay”, you DO NOT want to hold this long-term...you’ll end up losing eventually.
Pros: Leveraged way to play the financial index; high volatility (if you like it)
Cons: Too volatile if you’re wrong; poor time value (due to ETF’s time decay)
YTD Performance: -9.57%

FAZ and FAS Direxion Financial Bear/Bull 3X Shares

Do you consider yourself a gambler? A master of trading? Just plain dangerous? Life is too short to be “safe”? If you answered yes to any of these questions, I dare you try these two financial 3x ETFs. They are by far the most leveraged financial ETFs out there. This tracks the financial index 3x (yes, THREE times). So if the financial index goes up by 20%, this ETF will go up by ~60%!!!! Now you don’t have to be a rocket scientist to know…that this is a high risk ETF. If you’re new to investing, don’t do it. (Yes, I know..I’m trading them right now and I’m sick to my stomach. I need to get out soon)
Pros: Volatile as HELL
Cons: Make a mistake, you’re toast
FAZ YTD Performance: -45.49%
FAS YTD Performance: -74.16%

A final note on these financial ETFs. Because of these ETF’s “time decay” (I will explain this in my future posts), you don’t want to hold these long-term (maybe except XLF). Look at the YTD performance on all of these ETFs. It says it all. Instead, try to leverage these ETFs to ride the “momentum”. If you are sure that the financials are going up or down in value, ride their wave by getting into one of these ETFs. Good luck!