Three Financial Sector ETFs; Each with its Own Perspective
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The financial services sector, once called the black sheep of the family for causing the financial markets meltdown in 2008, still remains to be an important part of the economy and an area that still is ripe with profit opportunities for the individual investor. Regardless of how greed got so far out of hand, the eventual correction will result in a far better set of principles that will enable this industry to return to solid profitability, without the excesses.
Investment opportunities in this sector are in abundance. Numerous active and passive strategies can be found. Whether the motivation is to invest in regional banks or multinational banks, well designed portfolios that can consistently deliver performance in this sector will be more than welcome and help the general public forget what has taken place a few years ago. Some ETFs in this space are listed below.
The SPDR S&P Regional Bank ETF (NYSEMKT: KRE) mimics the S&P Regional Banks Select Industry Index and was started on June 19, 2006. Go to for the latest summary information http://www.bloomberg.com/quote/KRE:US KRE has 77 holdings in its portfolio and appears to use an equally balanced approach. The top two holdings are Synovus Financial Corp (NYSE: SNV), with 2.173% and SunTrust Banks Inc (NYSE: STI), with 2.032% held in the fund. I do like KRE based on a few reasons. Regional banks have the ability to grow better than the large multinational banks can and like real estate, diversification in different regions of the country adds another dimension of downside protection. Documented performance and facts can be found here https://www.spdrs.com/product/fund.seam?ticker=KRE
The iShares Dow Jones US Insurance Index Fund (NYSEMKT: IAK) is based on following the Dow Jones US Select Insurance Index. Inception of IAK is listed as May 1, 2006. Go to http://www.bloomberg.com/quote/IAK:US for current information. IAK appears to be working off the adverse effects of 2008 and will soon be back on track to develop a long-running positive history. I remain neutral on the insurance industry as there are a lot of fundamental changes taking place within. The life insurance side is scaling back on the features and benefits of policies sold, long-term care insurance is carriers are withdrawing from the marketplace and the only bright spot is the property and casualty group. IAK holds 62 stocks and the top two holdings are Metlife Inc (NYSE: MET), with 7.43% and Prudential Financial Inc (NYSE: PRU) has 7.23% of the fund. The top heavy exposure to life insurers adds to the existing doubt about IAK. Details on the performance of IAK are found here http://us.ishares.com/product_info/fund/overview/IAK.htm
The Guggenheim S&P 500 Equal Weight Financials ETF (NYSEMKT: RYF) is designed to follow the S&P Equal Weight Financial Index, established on November 7, 2006. RYF has 81 stocks and the largest holding is Weyerhaeuser Company (NYSE: WY), with 1.42% of the fund. WY is classified as a real estate investment trust. The second largest position is Morgan Stanley (NYSE: MS), with 1.41% of the fund. The broader base of industries in RYF shows greater diversification by going outside of the financial sectors. I like RYF as it looks like the adverse effects of 2008 are working their way through the performance history. The extra diversification is also a plus on the risk management side. Details on RYF are on this link http://www.rydex-sgi.com/products/etfs/products/overview.rails?rydex_symbol=RYF
The financial sector tends to be an early indicator of the overall economic health of the country. Within this sector there appears to be some hints that economic improvement is approaching. For the investor that likes bottom fishing, now may be good time to cast the line in these waters.
Jeffrey L. (Jeff) Stouffer is an Investment Advisor Representative and manages the Alexandria VA office of Kingsview Asset Management. As a practicing financial advisor serving the needs of individuals and small businesses, he believes in using a wide range of investment strategies, including alternative investments. All strategies are client centric and unique. He can be reached at jeff.stouffer@kingsviewassetmanagement.com
jlstouffer has no positions in the stocks mentioned above. The Motley Fool owns shares of Weyerhaeuser Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
