Financial ETFs: How Do iShares U.S. Financials ETF (IYF) and Regional Banks ETF (IAT) Compare?

Investors choosing between iShares U.S. Financials ETF (NYSEMKT:IYF) and iShares U.S. Regional Banks ETF (NYSEMKT:IAT) are primarily deciding between broad-sector stability and a concentrated, higher-yielding play on regional lenders.

These two funds offer different ways to play the U.S. financial services sector. While the iShares U.S. Financials ETF provides broad exposure to banking, insurance, and investment firms, the iShares U.S. Regional Banks ETF focuses exclusively on a volatile but high-yielding niche of regional lenders. Investors may find the broader fund offers more stability during banking-specific turbulence.

Snapshot (cost & size)

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-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Both ETFs carry a 0.37% expense ratio, making them equally affordable in terms of annual management fees. However, the iShares U.S. Regional Banks ETF offers a more substantial payout, nearly doubling the yield of its broader peer group.

Performance & risk comparison

What's inside

The iShares U.S. Financials ETF provides exposure to 143 holdings across the broad financial services landscape, including mega-cap banks and diversified financials. Its largest positions include Berkshire Hathaway Inc Class B (NYSE:BRKB) at 12.03%, Jpmorgan Chase & Co (NYSE:JPM) at 11.15%, and Bank Of America (NYSE:BAC) at 4.11%. The fund was launched in 2000. iShares U.S. Financials ETF has paid $1.95 per share over the trailing 12 months, which, on its recent ~$128.2 share price, works out to a 1.5% yield.

The iShares U.S. Regional Banks ETF offers a narrower focus with 30 holdings, specifically targeting institutions that provide commercial and retail banking services in local markets. Its top holdings include Us Bancorp (NYSE:USB) at 15.04%, Pnc Financial Services Group (NYSE:PNC) at 14.79%, and Truist Financial (NYSE:TFC) at 9.53%. This fund was launched in 2006. iShares U.S. Regional Banks ETF has paid $1.64 per share over the trailing 12 months, which, on its recent ~$57.0 share price, works out to a 2.9% yield.

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Which looks like the better buy

When comparing the iShares U.S. Financials ETF (IYF) and the iShares U.S. Regional Banks ETF (IAT), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should discuss the differing strategies of each fund. Simply put, each of these funds targets a different sector/sub-sector. IYF is a broad financial-sector ETF. It targets a broad swath of financial services stocks, including mega-cap banks, insurers, and asset managers. IAT, on the other hand, focuses on small- and mid-sized regional banks. What's more, IAT holds far fewer stocks, only around 30, while IYF holds closer to 150.

Two other important factors are historical performance and income potential. As one might expect, given the differences in strategy, the historical performance of these two ETFs is dissimilar. Since 2021, IYF has generated a total return of 60%, equating to a compound annual growth rate (CAGR) of 9.8%. IAT, meanwhile, has delivered a total return of just 5%, with a CAGR of 1.1%. Turning to income potential, IAT has the edge. It has a dividend yield of 2.87%, while IYF's dividend yield is 1.52%.

One final factor to weigh is cost. However, in this case, each fund has an identical expense ratio of 0.37%. For context, a person who invests $10,000 in each fund should expect to pay $37 per year in fees.

In summary, although IYF and IAT are both ETFs that invest in financial stocks, they are distinct. IYF is best for investors seeking broad exposure to the financial sector, with a focus on mega-cap stocks. IAT, by contrast, is best for those interested in a pure-play on regional lenders and their greater relative income-producing capabilities. All in all, however, IYF wins the head-to-head matchup with its superior long-term performance and greater diversification.

Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, Truist Financial, and U.S. Bancorp. The Motley Fool has a disclosure policy.