VFH vs. IAT: Which Financial Sector ETF Is the Better Buy?
Key Points
The Vanguard Financials ETF (VFH) provides broad exposure across the financial sector with more than 400 holdings, while the iShares U.S. Regional Banks ETF (IAT) focuses on 31 regional lenders.
IAT offers a higher dividend yield of 2.60%, but also carries a much higher expense ratio.
VFH has delivered superior five-year returns and has experienced a much smaller maximum drawdown compared to IAT.
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Comparing the Vanguard Financials ETF (NYSEMKT:VFH) and the iShares U.S. Regional Banks ETF (NYSEMKT:IAT) reveals two very different approaches: one is a broad-market financial services strategy, and the other is a concentrated, high-yield bet on domestic regional banking institutions.
While both funds provide exposure to the financial sector, VFH captures the entire spectrum of financial services, whereas IAT specifically targets the regional banking industry -- making it more susceptible to localized economic cycles and industry-specific headwinds.
Snapshot (cost & size)
| Metric | IAT | VFH |
|---|---|---|
| Issuer | iShares | Vanguard |
| Expense ratio | 0.38% | 0.09% |
| 1-year return (as of July 31, 2026) | 30.51% | 10.92% |
| Dividend yield | 2.60% | 1.77% |
| Beta | 1.23 | 0.83 |
| AUM | $656.0 million | $13.8 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
VFH is the cheaper option, with an expense ratio of 0.09% -- significantly lower than IAT’s 0.38%. However, IAT offers a higher dividend yield of 2.60% compared to VFH’s 1.77%.
Performance & risk comparison
| Metric | IAT | VFH |
|---|---|---|
| Max drawdown (5 yr) | (55.53%) | (25.67%) |
| Growth of $1,000 over 5 years (total return) | $1,334 | $1,711 |
What's inside
Launched in 2004, VFH tracks an index of firms that provide financial services and maintains a diversified portfolio of 428 holdings. Its largest positions include JPMorgan Chase (NYSE:JPM) at 9.2%, Berkshire Hathaway (NYSE:BRKB) at 7.8%, and Mastercard (NYSE:MA) at 4.7%.
IAT focuses exclusively on the regional banking industry with a much smaller basket of 31 stocks. Top holdings include PNC Financial Services Group (NYSE:PNC) at 15.0%, US Bancorp (NYSE:USB) at 14.2%, and Truist Financial Corp (NYSE:TFC) at 9.4%. It launched in 2006.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
The choice between VFH and IAT ultimately comes down to how much concentration risk an investor is willing to take on.
VFH's 428-holding portfolio spans banks, insurers, asset managers, and payment companies -- so a downturn in any single corner of financial services, including regional banking, shouldn’t have an outsize impact. That diversification also helps explain why VFH has posted stronger five-year returns with meaningfully less volatility than IAT.
IAT, by contrast, is a purer play on the health of the U.S. regional banking sector. Regional banks tend to be more sensitive to interest rate swings, local real estate exposure, and deposit flight -- risks that came into sharp focus during 2023's regional banking turmoil. While IAT charges a higher expense ratio than VFH, it also pays a higher dividend -- so investors are at least being somewhat compensated for taking on more sector-specific risk.
It's also worth noting that IAT's top three holdings -- PNC, U.S. Bancorp, and Truist -- make up nearly 39% of the fund, so investors aren't just betting on regional banking broadly. They're leaning heavily on the fortunes of a handful of large regional players.
For investors who want core exposure to the financial sector without betting on any one subsector's fortunes, a broad fund like VFH is probably a better fit -- and a steadier ride. For investors who understand the cyclical risks of regional lenders and are seeking a higher yield, IAT offers a more targeted way to play a potential rebound in that corner of the market. As with most sector ETFs, the best choice depends less on past performance and more on how much single-industry risk an investor is comfortable holding.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Andy Gould has positions in Berkshire Hathaway, Mastercard, Truist Financial, and U.S. Bancorp. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, Mastercard, Truist Financial, and U.S. Bancorp. The Motley Fool has a disclosure policy.
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