Investor interest in 2026 has followed two competing trends. The prevailing trade has been to pile into artificial intelligence stocks, particularly the hyperscalers within the Magnificent Seven that are committing enormous sums of capital expenditures to data centers. Investors pursuing this strategy are betting that these investments will eventually translate into earnings growth and productivity gains.
A more contrarian approach has been to seek out companies that could hold up better if enthusiasm for AI proves excessive and valuations eventually correct. One expression of this strategy is the so-called HALO theme, short for “high assets, low obsolescence.” It emphasizes real asset businesses with substantial physical footprints that may be difficult for AI to replicate or disrupt.
Financials have received comparatively less attention in this debate. Under the Global Industry Classification Standard (GICS), the sector includes banks, financial services and insurance. Its underlying businesses range from diversified and regional banks to investment banking and brokerage, asset management and custody, consumer finance, payment processing, exchanges and underwriting.
Year to date, the financial sector has experienced a recovery in dealmaking. According to Reuters, Goldman Sachs Group Inc. (ticker: GS) advised on 111 European, Middle East and North Africa mergers and acquisitions during the first half of 2026, representing 44% of the region’s $676 billion in deal value.
The AI boom itself is creating another source of business for Wall Street. In October, the Financial Times reported that Morgan Stanley (MS) was among the lead underwriters arranging a $60 billion financing package to support Anthropic’s leasing of advanced chips supplied through Broadcom Inc. (AVGO).
“Financials delivered a solid second quarter, with earnings growth expectations rising from roughly 5% to 22% as results were reported, driven by 85% of companies exceeding consensus estimates,” says Matthew Bartolini, managing director and global head of research strategists at State Street Investment Management. “Sector net margins also expanded by approximately 2% year over year, reflecting healthy operating leverage.”
Investors looking to overweight financial stocks can do so through a variety of sector exchange-traded funds (ETFs). These range from U.S.-focused and international alternatives, specialized strategies targeting individual industries, to even emerging themes like prediction markets and tokenization.
Here are seven of the best financial ETFs to buy in 2026:
| ETF | Expense Ratio |
| State Street Financial Select Sector SPDR ETF (XLF) | 0.08% |
| Vanguard Financials ETF (VFH) | 0.09% |
| State Street Financial Select Sector SPDR Premium Income ETF (XLFI) | 0.35% |
| State Street SPDR S&P Bank ETF (KBE) | 0.35% |
| iShares MSCI Europe Financials ETF (EUFN) | 0.49% |
| iShares Global Financials ETF (IXG) | 0.38% |
| Tema Trading & Prediction Markets ETF (DICE) | 0.75% |
State Street Financial Select Sector SPDR ETF (XLF)
“We remain constructive on financials because the sector’s fundamentals remain strong,” Bartolini explains. “Third-quarter earnings estimates have continued to move higher, and full-year 2026 earnings growth is now expected to reach double digits, supported by loan growth, capital markets activity and resilient net interest income trends.” For blue-chip U.S. financials exposure, State Street offers XLF.
XLF draws its 76 holdings from the S&P 500, ensuring a baseline for size, liquidity and earnings consistency. Its market-cap-weighted methodology gives the largest financial companies, including Berkshire Hathaway Inc. (BRK.B), JPMorgan Chase & Co. (JPM) and Visa Inc. (V), the greatest influence over portfolio performance. The ETF charges a 0.08% expense ratio and pays a 1.4% 30-day SEC yield.
Vanguard Financials ETF (VFH)
“With 423 stocks, VFH provides broad exposure to the U.S. financial sector, extending beyond the largest companies captured by large-cap-focused sector ETFs,” explains Kathy Kellert, head of index equity product at Vanguard. “For investors seeking dedicated financial-sector exposure, VFH offers a low-cost, index-based way to access the sector broadly at an expense ratio of just 0.09%.”
Unlike XLF, VFH’s financial sector exposure is not limited to companies in the S&P 500. Instead, it captures hundreds of additional mid- and small-cap financial stocks, providing broader diversification across the sector. However, VFH remains market-cap weighted, meaning its largest holdings closely resemble those of XLF, albeit with less concentration in the biggest financial institutions.
State Street Financial Select Sector SPDR Premium Income ETF (XLFI)
“Despite these favorable fundamentals, investor positioning toward the sector remains relatively cautious,” Bartolini explains. “Financial sector flows have been negative over the past three months, and short interest has increased, suggesting the sector remains somewhat out of consensus.” Year to date through Sept. 30, XLF’s total return has been essentially flat, but accompanied by significant volatility.
By comparison, its income-oriented counterpart, XLFI, has managed to slightly outperform. XLFI holds the same portfolio of S&P 500 financial stocks but adds a covered-call overlay designed to collect option premiums at the cost of capped upside appreciation. XLFI currently pays an 11.3% annualized distribution rate based on its most recent monthly payout, but charges a higher 0.35% expense ratio.
State Street SPDR S&P Bank ETF (KBE)
“The Federal Reserve recently finalized reforms to its annual stress-testing framework, and additional regulatory relief, including potential Basel III, GSIB surcharge and liquidity-rule revisions, could follow,” Bartolini says. “Greater transparency and predictability around capital requirements may give banks more flexibility to deploy capital through lending, market intermediation and M&A activity.”
Investors looking to focus exclusively on banks may find XLF too broad for their liking. An alternative is KBE, which tracks the S&P Banks Select Industry Index, an equal-weighted benchmark comprising 107 banks. This approach prevents the largest institutions from dominating, providing greater exposure to mid- and small-cap regional banks. KBE charges a 0.35% expense ratio and pays a 2.2% 30-day SEC yield.
iShares MSCI Europe Financials ETF (EUFN)
Modern banking and capital markets have deep European roots, from Amsterdam’s pioneering stock exchange and joint-stock companies in the 1600s to London’s emergence in the 1800s as a global center for banking and insurance. However, U.S.-focused financial ETFs such as XLF and VFH offer little to no exposure to the modern institutions that emerged from them, despite their continued global dominance.
Investors seeking European financial stocks can consider EUFN, which tracks the MSCI Europe Financials Index for a 0.49% expense ratio. Its 84 holdings span countries like the U.K., Germany, Spain, France and Switzerland. EUFN’s top positions include HSBC Holdings PLC (HSBA.L), Banco Santander SA (SAN), Allianz SE (OTC: ALIZY), UBS Group AG (UBS) and BNP Paribas SA (BNP.PA). The ETF currently pays a 2.9% 30-day SEC yield.
iShares Global Financials ETF (IXG)
Building a financial sector allocation doesn’t require investors to choose between U.S.-focused ETFs like XLF and VFH and European alternatives such as EUFN. Investors seeking a one-stop global approach can consider IXG, which tracks the S&P Global 1200 Financials Capped Index. For a 0.38% expense ratio, the ETF provides exposure to 223 financial companies across developed markets worldwide.
One notable allocation absent from XLF, VFH and EUFN is IXG’s Canadian holdings. These include all five major Canadian banks: Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM). Together, they help make Canada the ETF’s second-largest geographic allocation at approximately 7.5%.
Tema Trading & Prediction Markets ETF (DICE)
“DICE is the first and only ETF to offer exposure to both Kalshi and Polymarket through special-purpose vehicles (SPVs), and among the top positions,” says Paisley Nardini, head of investment strategy at Tema ETFs. “Beyond the two platforms, DICE also owns the rails via Robinhood Markets Inc. (HOOD), Coinbase Global Inc. (COIN), Intercontinental Exchange Inc. (ICE) and Interactive Brokers Group Inc. (IBKR).”
Currently, DICE’s combined positions in Kalshi and Polymarket SPVs account for just over 11% of the ETF’s portfolio. These private-market investments are subject to SEC Rule 22e-4, which generally limits a fund’s aggregate holdings of illiquid investments to 15% of net assets. According to Tema, DICE’s current marks imply a valuation of around $35 billion for Kalshi and $12.8 billion for Polymarket.