Better iShares Financial ETF: European-Targeted EUFN vs. IAT's U.S. Regional Banks Focus

The iShares U.S. Regional Banks ETF (NYSEMKT:IAT) and iShares MSCI Europe Financials ETF (NASDAQ:EUFN) provide targeted banking exposure, with the European fund offering broader diversification and higher income potential.

Investors looking at the financial sector often choose between domestic focus and international diversification. Comparing a regional banking fund to a broad European financial fund highlights differences in concentration, dividend potential, and risk profiles, ranging from localized U.S. credit cycles to the systemic regulatory environments of the Eurozone.

This comparison examines how investors might balance the concentrated exposure of a regional portfolio against the broader reach of developed European institutions.

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

The iShares U.S. Regional Banks ETF maintains a cost advantage with its 0.37% expense ratio, making it a relatively efficient choice for domestic bank exposure. On the income side, the iShares MSCI Europe Financials ETF offers a more substantial yield, as its 4.1% payout provides a notable margin over the 2.9% distribution from the American fund. This yield gap of 1.22 ppt may be a deciding factor for income-focused investors.

Furthermore, with $4.0 billion in assets under management (AUM), the European fund is considerably larger than the domestic regional bank fund, which manages $614.1 million.

Performance & risk comparison

The iShares MSCI Europe Financials ETF aims to replicate a benchmark of companies within the financial services industry in developed European markets. Its portfolio includes 84 positions, primarily concentrated in financial services at 98%, with minor 1% allocations to technology and industrials. Its largest positions include HSBC Holdings at 9.66%, Banco Santander at 5.76%, and Allianz at 5.13%. This fund was launched in 2010, and has paid $1.65 per share over the trailing 12 months, which on its recent ~$40.85 share price works out to a 4.1% yield.

The iShares U.S. Regional Banks ETF seeks to mirror the performance of an index consisting of domestic stocks specifically within the regional banking industry. It is significantly more concentrated than its European peer, holding just 30 positions with 100% exposure to financial services. Top holdings include Us Bancorp at 15.14%, PNC Financial Services Group at 14.82%, and Truist Financial at 9.59%. This fund was launched in 2006, and has paid $1.64 per share over the trailing 12 months, which on its recent ~$57.97 share price works out to a 2.9% yield.

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Which looks like the better buy

The iShares MSCI Europe Financials ETF (EUFN) and iShares U.S. Regional Banks ETF (IAT) gives you very different types of exposure to the financial sector. Choosing between them comes down to whether you want to invest in the European financial market or "main street USA." That said, several additional factors may sway the decision to one fund, or you could invest in both to gain global exposure as the holdings do not overlap.

IAT's regional banks focus means you're investing in local economies within the U.S. It delivers a solid dividend yield, and smaller banks have the potential to outperform larger companies. However, those benefits come with far greater volatility, as demonstrated by the ETF's larger max drawdown. Also, its AUM is much smaller, so the liquidity isn't as great as the European-targeted fund.

EUFN is ideal for conservative investors, given its lower volatility. It's an all-around excellent ETF compared to IAT, delivering a better total return, higher dividend yield, and a greater AUM. These pros are offset by a larger expense ratio, as well as currency risks that can impact your return.

HSBC Holdings is an advertising partner of Motley Fool Money. Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Truist Financial and U.S. Bancorp. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.