Over the past year, the financial sector has been a favorite target of criticisms, frequently accused of outrageous greed that sparked the mortgage meltdown in the U.S., eventually spreading to nearly all corners of the global economy. Moreover, the volatility of financial companies has skyrocketed, perhaps best evidenced by the fact that Direxion’s 3x leveraged Daily Bull (FAS) and Bear (FAZ) Financial Funds (which are vulnerable to big losses in oscillating markets) are down more than 60% and 80%, respectively, since the start of year. These big swings and substantial losses have caused many investors to stay away from the financial sector altogether. While many banking and diversified finance ETFs have continued to trend down in the first half of 2009, the news out of the financial sector hasn’t been all bad. Here’s a look at five ETFs that have bucked the trend and posted strong returns year-to-date:
- iShares Dow Jones U.S. Broker-Dealers Index (IAI): IAI seeks to track the Dow Jones U.S. Select Investment Services Index, a benchmark that includes companies providing certain specialized financial services. IAI includes securities brokers and dealers, online brokers, and securities and commodities exchanges. Goldman Sachs (11.5%) and Morgan Stanley (8.8%) are this fund’s largest holdings.
- SPDR KBW Capital Markets ETF (KCE): KCE tracks an index comprised of companies that do business as broker-dealers, asset managers, trust and custody banks, and exchanges. KCE’s underlying holdings are very similar to those of IAI.
- Claymore/Beacon Global Exchanges, Brokers & Asset Managers ETF (EXB): EXB invests primarily in companies that operate a security exchange or brokerage/asset management firm. Despite the fact that more than 60% of its holdings are U.S.-based, EXB has delivered strong returns in 2009. A word of warning though – its market capitalization is around $3 million and its average daily volume less than 5,000 shares, indicating some potential for liquidity issues.
- WisdomTree International Financial Sector ETF (DRF): DRF tracks the performance of dividend-paying financial companies in developed markets outside the U.S. and Canada, allowing it to avoid a number of poor performers entirely. The largest weightings in the fund are given to the UK (18.1%), Spain (16.9%), and Australia (16.4%).
- RevenueShares Financials Sector Fund (RWW): RWW holds the same stocks included in the S&P Financials Index, but applies a little twist on the weighting methodology: instead of basing weightings on market capitalization, they’re determined by top line revenue. By comparison, XLF, which tracks a similar benchmark, is down about 2.1% on the year.
Compared to more traditional, better-known ETFs in the financial sector, the five funds highlighted above have soared in the first half of 2009. A look at some of the winners and losers in the financials category year-to-date:
|Fund||YTD Return||Fund||YTD Return|
|iShares Dow Jones U.S. Broker-Dealers Index (IAI)||26.6%||SPDR KBW Regional Banking ETF (KRE)||-35.4%|
|SPDR KBW Capital Markets ETF (KCE)||26.3%||PowerShares Dynamic Banking (PJB)||-28.3%|
|Claymore/Beacon Global Exchanges, Brokers & Asset Managers ETF (EXB)||19.1%||iShares Dow Jones U.S. Regional Banks Index (IAT)||-25.5%|
|WisdomTree International Financial Sector ETF (DRF)||13.3%||SPDR KBW Bank ETF (KBE)||
|RevenueShares Financials Sector Fund (RWW)||4.6%||iShares Dow Jones U.S. Insurance Fund (IAK)||-10.1%|
Disclosure: No positions at time of writing.