Vanguard's Broad Exposure Trumps State Street in Financial Sector ETF Showdown

The two financial sector exchange-traded funds (ETFs) at the center of this comparison are State Street Financial Select Sector SPDR ETF (XLF) and Vanguard Financials ETF (VFH). While both funds focus on the financial sector, they differ significantly in terms of their portfolio depth and concentration.

XLF holds 76 stocks, including top holdings JPMorgan Chase, Berkshire Hathaway, and Visa. In contrast, VFH tracks the MSCI US Investable Market Index (IMI)/Financials 25/50 benchmark, which includes mid- and small-cap financial companies, holding a total of 428 stocks.

Both funds have delivered similar total returns over the last five years, with XLF returning $1,665 and VFH returning $1,672 on a $1,000 investment. However, VFH offers broader exposure to the financial sector, including smaller regional banks, which could be beneficial in a steeper yield curve environment.

The main difference between these two funds is their level of concentration. XLF is more concentrated in its top positions, while VFH's wider net means more exposure to smaller regional banks.