Best Financial ETFs for 2025

Financial ETFs (Exchange-Traded Funds) are investment funds that track the performance of various financial assets or indices within the financial sector. These ETFs are designed to give investors exposure to a broad range of financial companies such as banks, insurance firms, asset management companies, and brokerage firms, all within a single, easy-to-trade security.

The key advantage of investing in financial ETFs is diversification. Rather than purchasing individual stocks in the financial sector, which may carry high volatility and risk, an ETF allows you to invest in a wide variety of companies. By pooling assets across many different financial institutions, these ETFs reduce the risk that comes with investing in a single stock. Additionally, financial ETFs are traded on the stock exchange just like individual stocks, meaning investors can buy and sell throughout the day.

Some of the most common types of financial ETFs are:

• Financial Sector ETFs: Track the broader financial sector, including banks, insurance companies, and investment firms.
• Financial Index ETFs: These track specific financial indices, such as the S&P 500 Financials Index or the Dow Jones U.S. Financials Index, which represent a subset of companies within the financial industry.

Financial ETFs are particularly attractive to investors looking for a way to profit from the performance of the financial market without needing to pick individual stocks or worry about company-specific risks.

With the financial sector poised for significant growth in 2025, driven by rising interest rates, economic recovery, and increasing market volatility, investors can expect a range of opportunities to tap into this dynamic industry. Here are some of the top financial ETFs to keep an eye on, each offering exposure to different areas of the financial market:

1. Financial Select Sector SPDR Fund (XLF)
   The Financial Select Sector SPDR Fund (XLF) remains one of the most popular and well-established financial ETFs. Known for tracking a broad range of financial companies within the S&P 500, this ETF provides diversified exposure to various financial sub-sectors, including banks, insurance companies, investment firms, and more. The XLF ETF includes top financial players like JPMorgan Chase, Bank of America, and Berkshire Hathaway. This fund is favored for its excellent liquidity and ability to provide exposure to some of the largest financial institutions in the U.S. The ETF’s holdings are spread across different financial services, which makes it a great option for those looking to invest in the entire financial sector. As interest rates continue to rise, XLF stands to benefit from the positive momentum in banking and insurance stocks, positioning it well for growth in 2025.
2. Vanguard Financials ETF (VFH)
   The Vanguard Financials ETF (VFH) is another solid choice for investors looking to gain exposure to large and mid-sized U.S. financial companies. VFH tracks the MSCI US Investable Market Financials 25/50 Index, which includes a diverse selection of financial companies across multiple subsectors, such as banking, insurance, real estate, and asset management. The fund features high-quality companies like JPMorgan Chase, Berkshire Hathaway, and Wells Fargo. One of the standout features of VFH is its comprehensive exposure to all aspects of the financial sector, making it a great option for investors seeking diversified exposure within the industry. Additionally, Vanguard’s low expense ratios make VFH an attractive option for long-term investors looking for cost-effective financial sector exposure. As the U.S. economy recovers, VFH is positioned to benefit from a broad rebound in financial stocks.
3. iShares U.S. Financials ETF (IYF)
   The iShares U.S. Financials ETF (IYF) is designed for investors seeking exposure to large U.S. financial companies. Tracking the Dow Jones U.S. Financials Index, IYF includes some of the biggest names in the industry, including Wells Fargo, Citigroup, and Goldman Sachs. This ETF is ideal for those who want a core holding in financial institutions that play a critical role in the U.S. economy. What sets IYF apart is its strong focus on large-cap financials, which often tend to perform well in economic recoveries. With financial institutions benefiting from rising interest rates and an improving economy, IYF has solid potential for long-term growth. The ETF’s exposure to both traditional banking and investment services provides a balanced mix for investors looking to capitalize on multiple areas within the financial sector.
4. SPDR S&P Bank ETF (KBE)
   If you’re particularly interested in the banking sector, the SPDR S&P Bank ETF (KBE) is an excellent option. Focusing exclusively on banks, KBE tracks the S&P Banks Select Industry Index, which includes top banking stocks such as JPMorgan Chase, Wells Fargo, Citigroup, and PNC Financial Services. As interest rates continue to rise, the banking sector stands to benefit significantly, since higher rates tend to improve net interest margins for banks, which boosts profitability. KBE is particularly attractive for investors who believe that banks will outperform the broader financial sector in 2025, especially with the ongoing economic recovery. With its targeted focus on the banking industry, KBE offers a concentrated play on this essential segment of the financial sector.
5. Global X FinTech ETF (FINX)
   For investors interested in the innovative and fast-growing side of the financial sector, the Global X FinTech ETF (FINX) offers exposure to the rapidly expanding financial technology industry. This ETF invests in companies at the intersection of finance and technology, including leading firms such as Square, PayPal, Adyen, and Shopify. With the ongoing rise of digital payments, online lending, blockchain technology, and the increasing adoption of tech-driven solutions within financial services, FINX provides access to companies that are transforming the traditional financial landscape. As more people embrace cashless transactions and the shift toward digital finance accelerates, FINX is expected to continue its growth trajectory. For those looking to invest in the future of the financial sector, FINX represents an exciting opportunity to capitalize on the booming fintech space.
6. Invesco KBW Bank ETF (KBWB)
   The Invesco KBW Bank ETF (KBWB) offers another great way to gain exposure to the U.S. banking sector. The ETF tracks the KBW Nasdaq Bank Index, which includes large and regional banks such as Citigroup, JPMorgan Chase, U.S. Bancorp, and Regions Financial. KBWB is especially suitable for investors looking to capitalize on the growth of traditional banking institutions, as it provides exposure to both large-cap banks and regional banks. With rising interest rates benefiting the banking industry, KBWB stands to benefit from improved earnings for its constituents. The ETF also offers relatively low expenses, making it an attractive choice for long-term investors seeking a cost-efficient way to gain exposure to the banking sector.

Investing in financial ETFs is relatively straightforward and can be done through most brokerage platforms. Here are the basic steps to get started:

1. Choose a Brokerage Account
   You will need to open a brokerage account with a financial institution that offers access to ETFs. Many platforms, such as Robinhood, E*TRADE, Fidelity, and Schwab, allow you to trade ETFs easily. Choose a platform that suits your investment goals, whether you're looking for low fees, educational resources, or advanced tools for more experienced traders.
2. Research Financial ETFs
   Conduct research to find the best financial ETFs for your investment goals. Pay attention to the ETF's holdings, expense ratio, performance history, and any other relevant factors like dividends or market conditions. Use online resources such as Morningstar, ETF.com, or the fund provider’s website to gather more information.
3. Place Your Order
   Once you've selected an ETF, you can buy it through your brokerage platform. ETFs are bought and sold just like stocks, so you can choose to place a market order (buying at the current price) or a limit order (buying at a price you set). Most brokerages offer both options.
4. Monitor Your Investments
   After purchasing your financial ETF, it’s important to keep track of its performance regularly. While ETFs tend to be long-term investments, monitoring them can help you stay informed about market trends, sector movements, and any significant changes in the financial industry.
5. Diversify Your Portfolio
   While financial ETFs offer great exposure to the financial sector, it’s essential to maintain a diversified investment portfolio. You might want to combine financial ETFs with ETFs from other sectors, such as technology, healthcare, or energy, to manage risk and optimize returns.

Like any investment vehicle, financial ETFs come with their own set of advantages and disadvantages. Understanding these can help you make informed decisions when considering whether to add financial ETFs to your portfolio. Here’s a quick summary of the pros and cons:

Pros:

• Diversification: Financial ETFs provide exposure to a broad range of financial companies, reducing the risks associated with investing in individual stocks. By holding a basket of stocks across different financial subsectors, these ETFs mitigate the impact of poor performance by any one company.
• Liquidity: As ETFs are traded on the stock exchange, they can be bought or sold throughout the trading day, offering greater liquidity than mutual funds or individual stocks. This flexibility makes ETFs an attractive option for traders looking to execute timely transactions.
• Low Costs: Many financial ETFs have relatively low expense ratios compared to actively managed funds, making them a cost-effective way to gain exposure to the financial sector. The passive management of many ETFs means that management fees are kept to a minimum.
• Transparency: ETFs disclose their holdings on a daily basis, allowing investors to know exactly which stocks they are investing in at any given time. This transparency helps you stay informed about your portfolio and make adjustments as needed.
• Passive Investment: Many financial ETFs track indexes, making them a great choice for investors who prefer a passive investment strategy. Index-based ETFs typically perform in line with the broader market, offering a “set it and forget it” approach that appeals to long-term investors.

Cons:

• Sector-Specific Risk: Since financial ETFs are concentrated in the financial sector, they can be more volatile, especially during periods of economic downturns or financial crises. A downturn in the sector—such as a banking crisis or significant regulatory changes—could lead to larger-than-usual losses compared to broader market ETFs.
• Dividend Variability: Many financial ETFs pay dividends, which can be an attractive feature for income-focused investors. However, the dividends paid by these ETFs are subject to fluctuations based on the performance of the underlying financial companies. For example, banks may cut dividends in times of financial stress or uncertainty, affecting the income stream from these ETFs.
• Fees: While financial ETFs generally have lower expense ratios than actively managed funds, they still incur fees. Depending on the broker or platform you use, there may also be additional charges for buying, selling, or holding the ETF. These costs, though typically small, can add up over time, particularly for frequent traders.