Daily ETF Roundup: XLF Sinks, BLV Continues Rally

by on September 7, 2010

Tuesday marked a rough return for investors after an extended holiday weekend, as jitters over the state of Europe’s banking sector weighed on equity markets around the world. That uncertainty helped to propel gold futures to new record highs; contracts for September delivery rose above $1,257 per ounce, while the more actively-traded December contract rallied to more than $1,259 [see Three Legendary Investors With Big Positions In GLD]. Elsewhere, Barclays named investment banking boss Robert Diamond as its next chief executive while housing inventories increased for the eight consecutive month.

The ETFdb 60 Index, a benchmark measuring the performance of asset classes available through ETFs, dropped by 6.26 points, or 0.6%. Trading was light as Wall Street kicked off a traditionally slow week, and losers outnumbered winners by nearly three-to-one.

Among the biggest losers in Tuesday trading was the Financial SPDR (XLF), which closed lower by nearly 2% after renewed concerns about the stability of major banking institutions popped up across the pond. Analysis published in the Wall Street Journal showed that Europe’s recent “stress tests” of big banks likely understated holdings in potentially risky government debt. “An examination of the banks’ disclosures indicates that some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed,” wrote David Enrich. “Some banks excluded certain bonds, and many reduced the sums to account for ‘short’ positions they held—facts that neither regulators nor most banks disclosed when the test results were published in late July.” Those revelations send shares of U.S. banks plummeting as well, as most major components of XLF finished the day sharply lower.

Among the winners on the day were long-term bonds, which continued an impressive rally that has pushed some funds up more than 20% on the year. Vanguard’s Long Term Bond ETF (BLV) gained about 1.4% on the day, as a fresh wave of risk aversion sent investors flocking to the safe havens of precious metals and long-dated bonds. BLV, which spreads exposure across different sectors of the investment grade bond market, invests primarily in securities with at least 20 years to maturity.

Disclosure: No positions at time of writing.