European Financials Are Beating U.S. Rivals in 2026. Should You Chase the Rally?
Key Points
State Street Financial Select Sector SPDR ETF has a significantly lower expense ratio than iShares MSCI Europe Financials ETF.
iShares MSCI Europe Financials ETF provides a higher trailing-12-month dividend yield but has experienced a larger maximum drawdown over five years.
The State Street fund concentrates on major U.S. institutions like Berkshire Hathaway while the iShares fund provides exposure to the European banking sector.
- 10 stocks we like better than Select Sector SPDR Trust - State Street Financial Select Sector SPDR ETF ›
Investors choosing between State Street Financial Select Sector SPDR ETF (NYSEMKT:XLF) and iShares MSCI Europe Financials ETF (NASDAQ:EUFN) are weighing ultra-low domestic costs against higher-yielding international banking exposure.
Both funds provide targeted access to the financial sector, but they operate in entirely different geographies. While XLF focuses on the largest financial institutions within the S&P 500, EUFN tracks developed market European equities, offering a way to diversify away from U.S. concentration.
Snapshot (cost & size)
| Metric | EUFN | XLF |
|---|---|---|
| Issuer | iShares | SPDR |
| Expense ratio | 0.48% | 0.08% |
| 1-yr return (as of May 20, 2026) | 25.20% | 2.20% |
| Dividend yield | 3.40% | 1.50% |
| Beta | 0.79 | 0.87 |
| AUM | $3.7 billion | $49.5 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Expense ratios favor the SPDR fund, which is notably more affordable at 0.08%. Conversely, income seekers may prefer the iShares fund, which offers a 3.40% trailing-12-month yield compared to the 1.50% yield provided by its U.S.-focused counterpart.
Performance & risk comparison
| Metric | EUFN | XLF |
|---|---|---|
| Max drawdown (5 yr) | (35.20%) | (25.80%) |
| Growth of $1,000 over 5 years (total return) | $2,312 | $1,498 |
The performance profile over five years reveals a significant gap in risk-adjusted returns. This divergence highlights how international exposure can sometimes decouple from domestic sector trends, potentially rewarding investors who look beyond U.S. borders despite the inherently higher volatility of European markets.
What's inside
State Street Financial Select Sector SPDR ETF (NYSEMKT:XLF) provides highly liquid exposure to 76 U.S.-listed companies, allocating 98% of its portfolio to financial services with a slight 2% tilt toward technology. Its largest positions include Berkshire Hathaway (NYSE:BRK.B) at 11.99%, JPMorgan Chase (NYSE:JPM) at 11.07%, and Visa (NYSE:V) at 7.56%. Launched in 1998, the fund has become a primary vehicle for domestic sector rotation, paying $0.79 per share over the trailing 12 months.
In contrast, the iShares MSCI Europe Financials ETF (NASDAQ:EUFN) tracks 84 holdings across developed European markets, maintaining a 97% focus on financial services. Key holdings include HSBC Holdings (LSE:HSBA.L) at 9.25%, Banco Santander (BME:SAN.MC) at 5.33%, and Allianz (XETRA:ALV.DE) at 5.02%. Launched in 2010, the fund has paid $1.33 per share over the trailing 12 months, which reflects the mature, cash-generating nature of the European banking and insurance firms it holds within the index.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
This year, European financial stocks such as those held in EUFN are dramatically outpacing their U.S. counterparts. European banks entered the year trading at significantly cheaper valuations than U.S. peers, and increased defense spending, fiscal stimulus, and a strengthening euro sent them sharply higher. Meanwhile U.S. financials in XLF faced headwinds from tariff uncertainty and slower-than-expected deregulation, leaving the fund roughly flat year to date.
Although the performance gap is striking, long-term investors should be careful here. European financials have historically been more volatile and carry additional currency risk that domestic investors don't face with XLF.
The fee difference matters too. EUFN charges six times what XLF does, meaning it needs to consistently outperform to justify the premium. XLF's razor-thin cost, massive scale, and exposure to U.S. financial giants like JPMorgan, Berkshire Hathaway, and Visa make it the more dependable long-term foundation. EUFN is better suited as a tactical diversifier for investors who want targeted international financial exposure alongside an existing domestic core.
Should you buy stock in Select Sector SPDR Trust - State Street Financial Select Sector SPDR ETF right now?
Before you buy stock in Select Sector SPDR Trust - State Street Financial Select Sector SPDR ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Select Sector SPDR Trust - State Street Financial Select Sector SPDR ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $472,852!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,317,207!*
Now, it’s worth noting Stock Advisor’s total average return is 984% — a market-crushing outperformance compared to 210% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of May 27, 2026.
JPMorgan Chase is an advertising partner of Motley Fool Money. Sara Appino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, and Visa. The Motley Fool has a disclosure policy.
Recommended Articles
