This European Financials ETF Offers Double the Dividend and Higher Returns Than FNCL

The iShares MSCI Europe Financials ETF (NASDAQ:EUFN) focuses on developed European markets with a higher yield and expense ratio, while the Fidelity MSCI Financials Index ETF (NYSEMKT:FNCL) provides broad U.S. exposure at a much lower cost.

Financial sector investors can choose between the domestic stability of American banking giants or the high-income opportunities found in developed European markets. This comparison pits a low-cost U.S. index fund against a more specialized European portfolio to see how geographic focus influences cost, risk, and yield for a diversified portfolio.

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.

The Fidelity MSCI Financials Index ETF is significantly more affordable with an expense ratio of 0.08%, appealing to cost-conscious long-term investors. In contrast, the iShares MSCI Europe Financials ETF provides a higher payout, offering a 4% yield compared to 2% for its U.S. counterpart, though this income comes at a premium fee of 0.49%.

Performance & risk comparison

The iShares MSCI Europe Financials ETF targets developed European financial firms, maintaining a concentrated portfolio of 84 holdings. Its largest positions include Hsbc Holdings Plc at 9.66%, Banco Santander at 5.71%, and Allianz at 5.32%. Sector exposure is almost exclusively financial services at 98%, with trace amounts of technology and industrials at 1% each. It was launched in 2010. The iShares MSCI Europe Financials ETF has paid $1.65 per share over the trailing 12 months, which on its recent ~$41.12 share price works out to a 4% yield.

The Fidelity MSCI Financials Index ETF tracks a broader index of 388 U.S. stocks, offering significantly more granularity across the financial sector. Top holdings include JPMorgan Chase at 10.43%, Berkshire Hathaway at 7.8%, and Visa at 6.94%. It reflects the domestic market with 97% in financial services and small tilts toward technology and real estate. It was launched in 2013. The Fidelity MSCI Financials Index ETF has paid $1.57 per share over the trailing 12 months, which on its recent ~$79.11 share price works out to a 2% yield.

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Which looks like the better buy

There are many reasons to invest in the financial sector, including reliable income, cyclical growth opportunities, and attractive valuations. FNCL and EUFN offer two distinct ways to play the space, and the difference comes down to geography.

Investing in FNCL means betting on the U.S. financial system, with nearly 400 U.S. companies and a heavy tilt toward the country's biggest powerhouses. It's an inexpensive fund to hold and produces modest dividend income with less volatility than its European counterpart. If you're looking for a stable play on U.S. banking giants, FNCL should appeal to you.

With EUFN, everything is bigger (except for its number of holdings). It charges a larger expense ratio, but about double the dividend yield. It's produced substantially larger gains over the past one- and five-year periods, but also a larger maximum five-year drawdown. It's the more exciting option, both to the upside and the downside. This fund harnesses the growth and income potential of developed European markets, but it might not be a steady ride higher.

The choice between the two comes down to your risk tolerance and investing goals. If you're looking for broad financials exposure and extra diversification, it may be worth doing some more research and deploying some cash into both of these financials funds.

HSBC Holdings is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Sarah Sidlow has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, and Visa. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.