Key Points

  • iShares MSCI Europe Financials ETF offers broad exposure to developed European markets at a lower cost than the leveraged ProShares alternative.

  • ProShares - Ultra Financials uses 2x daily leverage, which creates significantly higher price volatility and resulted in a steeper maximum drawdown.

  • While the ProShares fund provides a higher dividend yield, iShares MSCI Europe Financials ETF delivered a much higher 1-year total return of 31%.

  • 10 stocks we like better than iShares Trust - iShares Msci Europe Financials ETF ›

iShares MSCI Europe Financials ETF (NASDAQ:EUFN) provides broad exposure to European banks and insurers, while ProShares - Ultra Financials (NYSEMKT:UYG) uses leverage to seek double the daily returns of U.S. financial stocks.

Investors looking for exposure to the financial sector may find these two funds provide drastically different experiences. While both track banking and insurance institutions, their geographic targets and mechanical structures create distinct risk-reward profiles that suit very different investment strategies or time horizons.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The iShares ETF is more affordable for long-term investors, carrying an expense ratio that is 0.45 percentage points lower than the ProShares fund. While the ProShares fund offers a much higher payout, the yield gap of 6.88 percentage points reflects its unique structure.

Performance & risk comparison

The iShares MSCI Europe Financials ETF targets developed European markets, holding 84 positions in companies that provide financial services. Its largest positions include HSBC Holdings (LSE:HSBA) at 9.44%, Banco Santander (NYSE:SAN) at 5.68%, and Allianz (FRA:ALV) at 5.08%. The fund focuses on international diversification within the financial sector and was launched in 2010. iShares MSCI Europe Financials ETF has paid $1.65 per share over the trailing 12 months, which on its recent ~$42.3 share price works out to a 3.9% yield.

ProShares - Ultra Financials seeks 2x the daily performance of the S&P Financial Select Sector Index, which introduces the quirk of a daily leverage reset. This leverage means its returns can deviate significantly from the underlying index over longer periods. It holds 84 positions, and its top holdings include Berkshire Hathaway (NYSE:BRKB) at 6.89%, JPMorgan Chase (NYSE:JPM) at 6.84%, and ProShares Genius Money Market ETF (NYSEMKT:IQMM) at 4.74%. The fund was launched in 2007. ProShares - Ultra Financials has paid $10.67 per share over the trailing 12 months, which on its recent ~$98.6 share price works out to a 10.8% yield.

For more guidance on ETF investing, check out the full guide at this link.

Which looks like the better buy

Most ETFs are designed for patient, long-term investors. UYG is not. This is a leveraged fund that uses derivatives to deliver twice the daily return of the U.S. financial sector index. If financials rise 2% on a given day, UYG aims to gain 4%. The reverse is equally true and equally punishing.

The critical word is daily. UYG resets its leverage every single day, which means returns over weeks or months can diverge sharply from what simple math suggests. In volatile or choppy markets, that daily reset erodes value even when the underlying index ends roughly flat, a phenomenon known as volatility decay. UYG is a tool for sophisticated short-term traders, not a long-term investment.

EUFN is a more traditional ETF that sits in an entirely different category. It holds European banks, insurers, and financial services companies across the continent, delivering broad exposure to an asset class that has outperformed U.S. financials significantly in recent periods as European valuations remain attractive and profitability improves.

For long-term investors, EUFN is the clear and appropriate choice between these two funds. It offers real diversification, a competitive yield, and a track record built for patient ownership. UYG belongs in the hands of experienced traders who understand exactly what leverage does over time and are prepared to manage positions accordingly.

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HSBC Holdings is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Sara Appino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and JPMorgan Chase. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.