The SPDRs Select Sector Financial ETF (NYSE: XLF) is trading at the best level in 18 months as investors realize a double-dip recession is highly unlikely. Even though the ETF is up 160% from the March 2008 low, it must more than double to reach the 2007 all-time high. The risk with XLF is lower than an individual financial stock; however above-average risk is evident.
Investors that would like to gain exposure to the financial sector without taking the high risk do have options in the world of ETFs. The iShares Preferred Stock Index ETF (NYSE: PFF) invests preferred stock versus common stock with an 88% exposure to the financial sector. Preferred shares of companies such as Barclays (NYSE: BCS), Bank of America (NYSE: BAC), and JPMorgan Chase (NYSE: JPM) make up the top ten holdings. On top of the exposure to financials the ETF pays a 6.6% annual dividend yield without the high volatility of the common stock of financials.
The PowerShares family of ETFs offers two preferred stock alternatives to PFF. The PowerShares Financial Preferred ETF (NYSE: PGF) concentrates solely on the financial sector. The main difference between PGF and PFF is that PGF is not as diverse with 35 holdings versus 85 for PFF. This adds slightly more risk to PGF. The yield on PGF is 7.6%. The PowerShares Preferred Portfolio ETF (NYSE: PGX) has very similar holdings to the two above-mentioned ETFs with 85% in the financial sector. PGX has 66 holdings in the ETF and pays a 7.0% dividend yield.
As far as performance, PGF and PFF are outpacing PGX this year simply due to the composition of the underlying portfolio. My personal favorite is PFF. | 
