Fidelity or State Street: Which Financial ETF Offers Better Returns?

Financial sector ETFs provide efficient exposure to banks, insurance companies, and capital markets.

Investors may find Fidelity MSCI Financials Index ETF (NYSEMKT:FNCL) appeals for its broader market coverage, while State Street Financial Select Sector SPDR ETF (NYSEMKT:XLF) offers unmatched liquidity and concentration in S&P 500 giants.

While both funds target the financial services space, they differ significantly in portfolio depth and market-capitalization focus. This comparison examines how these structural differences affect distribution potential, trading liquidity, and overall risk for long-term investors seeking to anchor their portfolios in diversified financial services.

Snapshot (cost & size)

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 based on the June 18 closing price.

Both ETFs are highly efficient options for sector exposure, as they feature identical 0.08% expense ratios. However, the Fidelity fund provides a more generous payout for income seekers, yielding 1.7% compared to the 1.5% offered by the State Street fund, which may impact total return calculations over time.

Performance & risk comparison

What's inside

The State Street Financial Select Sector SPDR ETF mirrors the Financial Select Sector Index, which targets the financial segment of the S&P 500. This narrow focus results in a concentrated portfolio of 76 holdings. Its largest positions include Berkshire Hathaway (NYSE:BRKA) at 11.8%, JPMorgan Chase (NYSE:JPM) at 11%, and Visa (NYSE:V) at 7.5%. Launched in 1998, it has 98% exposure to financial services and 2% to technology. It has a trailing-12-month dividend of $0.79 per share.

In contrast, the Fidelity MSCI Financials Index ETF tracks the MSCI USA IMI Financials 25/50 Index and has 386 holdings, including small- and mid-cap firms. Its largest positions include JPMorgan Chase at 9.8%, Berkshire Hathaway at 7.8%, and Visa at 6.6%. Launched in 2013, the portfolio consists of 97% financial services, 2% technology, and 1% real estate. It has paid $1.26 per share over the trailing 12 months, reflecting its broader inclusion of dividend-paying companies across the market capitalization spectrum.

Which fund is the better buy?

Even though the Fidelity MSCI Financials Index ETF and the State Street Financial Select Sector SPDR ETF seek to passively track different indices, their historical performance is remarkably similar. In fact, their top 10 holdings are identical, although each fund assigns a different weight to the components.

When considering funds that focus on businesses focused on money, it’s best to evaluate them on the basics: which one will make you more money?

Fidelity’s offering, FNCL, bests State Street’s XLF on performance year-to-date (negative 4.8% to negative 5.3%), over the past 52-weeks (9.6% to 8.3%), the 3-year lookback (20.6% to 19.5%), the 5-year time frame (8.4% to 8.2%), and the 10-year lookback (8.4% to 8.2%)

Ultimately, those aren’t huge differences in performance, and the difference in dividend yield isn’t dramatic enough to suggest taxes should play a major consideration. If you’re investing for the long term, the fund with consistently better returns is the better buy. That fund here is FNCL, the Fidelity MSCI Financials Index ETF.

For more guidance on ETF investing, check out the full guide at this link.

JPMorgan Chase is an advertising partner of Motley Fool Money. Brendan Coffey 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.