Morningstar Rating

ETF Research and Analysis

by Robert Goldsborough
Suitability
IShares U.S. Financial Services IYG is a passively managed exchange-traded fund that provides focused exposure to banks, brokerages, and asset managers. This ETF, which excludes insurance firms and REITs from its benchmark,  Read more 

Bull Case

Despite net interest-margin pressure in the short term, over the longer term, higher interest rates should help U.S. banks.
Banks also are in general better-capitalized than in the past, and capital ratios have been improving.
Banks are well-positioned for the future, having done a fine job cutting expenses. Read more 

Bear Case

Morningstar's equity analysts hold the view that interest-spread revenue at banks won't grow until interest rates rise, but even then, when rates do rise, net interest margins are expected to rise more slowly than rates themselves, as higher-yielding assets will be added as lower-yielding ones fall off.
IYG is expensive relative to other financial-services ETFs.
If interest rates rise, that could hamper underwriting activity at investment banks. Read more 

A Bond Fund That Stands Up to Rising Rates 
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