It is a passive ETF that tracks the MSCI US financials index. It holds a broad range of the US financial industry, from large banks to small and mid-sized insurers, fintech companies, and private equity firms, and it owns far more securities than the best-known concentrated financial ETFs.

It suits medium- to long-term investors who want diversified exposure across the US financial sector at a low expense ratio.

Fidelity launched the ETF in 2013, and it is managed passively (index-tracking).

Rather than holding the entire index, the fund replicates the financial sector through representative sampling. Although it is weighted toward large banks and insurers, it also includes small and mid-sized companies, offering broader diversification than comparable ETFs. The 25/50 concentration cap prevents over-concentration in any single stock.

• Holds more than 300 securities, providing broad diversification within the financial sector
• In-house management by Fidelity keeps the expense ratio low

Assets under management (AUM) stand at $2.3B, and the total expense ratio is 0.08% per year.

Among similar financial ETFs, XLF has relatively high concentration in its top holdings, whereas FNCL extends to small and mid-sized financial stocks for a wider spread. VFH also follows a broad diversification strategy, but it differs in fund manager and index composition.

Because the financial sector reacts sensitively to changes in the interest rate environment, it has tended to be strong during rate-hike periods on expectations of better net interest margins, while volatility has risen around the turn toward rate cuts.

Inflows into financial stocks as a whole stand out when regulatory easing is expected or the economy is expanding, while capital tends to flow out relative to defensive sectors when credit-quality concerns or signs of recession emerge.

Its strengths are a low expense ratio and broad diversification, while interest-rate sensitivity and exposure to the economic cycle are the main risk factors.

FDN and FIDU, shown in the table, are internet and industrials sector ETFs respectively. Their sectors differ from that of FNCL, so they are not direct substitutes. Direct comparisons within the financial sector include XLF, which is concentrated in financial stocks, and VFH, managed by Vanguard. XLF has high concentration in large financial stocks and offers rich liquidity and an active options market, while VFH takes a broad diversification approach similar to FNCL but differs in index composition and fund manager. If you need leveraged exposure within the sector, FAS (3x leveraged financials) may be an option, and for the opposite bet, FAZ (3x inverse financials) could also be considered, but note that they are intended for short-term trading.

Here are the points to review before investing in FNCL. Because the profitability of financial sector ETFs can change sharply with the direction of interest rates, the economic cycle, and the regulatory environment, it is worth checking these in advance.

Interest-rate sensitivity and exposure to the economic cycle are the key risks of financial sector ETFs. In a recession or financial crisis, the sector as a whole can weaken together despite broad diversification.

It is a suitable choice for investors who want low-cost diversified exposure to the entire US financial sector. For concentration in large caps, XLF fits; for both broad diversification and a low expense ratio, FNCL or VFH fits.