Even with the benefit of three interest hikes by the Federal Reserve this year (and likely a fourth coming in December), the financial services sector is disappointing investors. With just a month left in 2018, the Financial Select Sector SPDR (NYSEARCA:XLF), the largest exchange-traded fund (ETF) tracking the financial services sector, is lower by nearly 2% year-to-date.
While the gains are not staggering, insurance ETFs, broadly speaking, have been solid alternatives to more diversified financial services ETFs this year. The S&P Insurance Select Industry Index, the underlying benchmark, for one of the largest insurance ETFs, is up 2% year-to-date.
Of course, insurance ETFs are not perfect or intended for every investor. Insurance ETFs are focused products and could disappoint investors seeking financial services exposure if banks and brokerage firms lead the sector higher next year.
The SPDR S&P Insurance ETF (NYSEARCA:KIE), one of the largest insurance ETFs on the market, tracks the aforementioned S&P Insurance Select Industry Index. KIE is an equal-weight and none of its 49 holdings even reach a weight of 3%.
Companies in KIE’s lineup include the following: Insurance Brokers, Life & Health Insurance, Multi-Line Insurance, Property & Casualty Insurance and Reinsurance, according to State Street.
As is the case with some other financial services ETFs, KIE has a value feel to it with a price-to-earnings ratio of just over 12, which implies a significant discount to the broader U.S. equity market. Over the past three years, this insurance ETF has been about 300 basis points less volatile than XLF on an annualized basis.