Making its debut on 12/02/2010, smart beta exchange traded fund Invesco KBW High Dividend Yield Financial ETF (KBWD) provides investors broad exposure to the Financials ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is managed by Invesco. KBWD has been able to amass assets over $391.12 million, making it one of the average sized ETFs in the Financials ETFs. This particular fund, before fees and expenses, seeks to match the performance of the KBW Nasdaq Financial Sector Dividend Yield Index.

The KBW Nasdaq Financial Sector Dividend Yield Index is a dividend yield weighted index seeking to reflect the performance of approximately 24 to 40 publicly listed financial companies engaged in the business of providing financial services and products, including banking, insurance and diversified financial services, in the US.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for KBWD are 2.02%, which makes it one of the most expensive products in the space.

It has a 12-month trailing dividend yield of 13.39%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

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This ETF has heaviest allocation in the Financials sector - about 100% of the portfolio.

When you look at individual holdings, Invesco Mortgage Capital Inc (IVR) accounts for about 4.10% of the fund's total assets, followed by Orchid Island Capital Inc (ORC) and Dynex Capital Inc (DX).

The top 10 holdings account for about 34.55% of total assets under management.

Performance and Risk

So far this year, KBWD has lost about -3.52%, and is up about 0.71% in the last one year (as of 05/05/2025). During this past 52-week period, the fund has traded between $12.37 and $16.26.

The fund has a beta of 1.13 and standard deviation of 21.84% for the trailing three-year period, which makes KBWD a medium risk choice in this particular space. With about 41 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco KBW High Dividend Yield Financial ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $12.04 billion in assets, Financial Select Sector SPDR ETF has $50.95 billion. VFH has an expense ratio of 0.09% and XLF charges 0.08%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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Invesco KBW High Dividend Yield Financial ETF (KBWD): ETF Research Reports

INVESCO MORTGAGE CAPITAL INC (IVR):Free Stock Analysis Report

Financial Select Sector SPDR ETF (XLF): ETF Research Reports

Orchid Island Capital, Inc. (ORC):Free Stock Analysis Report

Dynex Capital, Inc. (DX):Free Stock Analysis Report

Vanguard Financials ETF (VFH): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

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