Three ETFs To Watch This Week: IYK, IAK, FXB

by on February 7, 2011 | ETFs Mentioned:

Wall Street managed to march higher early last week, however, domestic equities settled into range-bound trading for the remainder of the period given a lack of upbeat economic news and overall pessimism stemming from the situation in Egypt. Political instability and civil unrest in the region continue to put pressure on financial markets around the globe, especially as fears grow over the riots spreading to other countries in the area. Commodities have been quite volatile, with oil managing to slip just below $90 a barrel on Friday, while gold managed to hold support and inch higher. On Friday, the markets wobbled between positive and negative territory as investors digested a mixed jobs report, with data showing that job creation is still stagnant, despite a reduction in the overall joblessness rate to 9.0%.

This week has a round of earnings from major industry leaders, especially from the consumer goods sector, and investors are expected to remain on the edge of their seat as the Egyptian drama unfolds. Below, we profile three ETFs that will come into focus during the week:

iShares Dow Jones U.S. Consumer Goods Index Fund (IYK)

Why IYK Will Be In Focus: This fund, which tracks the Dow Jones U.S. Consumer Goods Index, has four of its top ten holdings all reporting earnings this week, including: Coca-Cola Company (KO), Philip Morris International, Inc. (PM), PepsiCo, Inc. (PEP), and Kraft Foods, Inc. (KFT) [see IYK Holdings]. The Coca-Cola Company which accounts for roughly 10% of the fund’s total holdings is slated to report fourth quarter results on Wednesday, February 9th, before the opening bell. The beverage giant is expected to haul in $9.75 billion in revenue, compared to the $7.51 billion it generated the same quarter a year ago, with analyst consensus for earnings coming in at 72 cents a share. Tobacco giant, Philip Morris, which accounts for 8% of IYK, is reporting earnings results on Thursday. Recovering emerging markets are expected to account for an increase in international revenues, while developed market sales are expected to decline due to health concerns and weakening demand. Analysts are expecting the company to earn 78 cents a share and generate $6.49 billion in revenues. IYK will likely see an increase in trading volumes as many top holdings report earnings, and offer commentary about the consumer goods sector as a whole going forward [read Warning Commodity Surge Could Sink Consumer Staples ETFs].

iShares Dow Jones U.S. Insurance Index Fund (IAK)

Why IAK Will Be In Focus: This fund tracks the Dow Jones U.S. Select Insurance Index, which measures the performance of the insurance sector of the U.S. equity market. Its top two holdings, Metlife (MET) and Prudential Financial (PRU), are both reporting earnings on Wednesday, February 9th suggesting that it could be a volatile time for the generally stable insurance industry. Metlife, which accounts for roughly 9% of IAK, is anticipated to report earnings of $1.10 per share and $13.49 billion in revenue. The company’s performance for the quarter will include one month of operations from Alico, a major life-insurance unit purchased earlier in November of last year. The funds second largest holding, Prudential Financial Inc., is expected to haul in $7.83 billion in revenues and generate investors $1.46 per share [see IAK Holdings]. Analysts will pay close attention to future forecasts and commentary regarding plans for expansion, including any insights about the performance of the two life-insurance units in Japan that the firm recently purchased from AIG [see Five Financial ETFs Flying Under The Radar].

Rydex CurrencyShares British Pound Sterling Trust (FXB)

Why FXB Will Be In Focus: This fund tracks the British Pound and it will come into focus as the Bank of England makes it decision regarding interest rates on Thursday morning, February 10th [see FXB Fact Sheet]. The current rate is 0.5%, and it was left unchanged following January’s meeting since the British economy remains extremely weak. Analyst consensus is for the bank to hold rates steady, since, with a gloomy outlook for much of Europe, especially Portugal, Spain, and Ireland, it would be a real surprise to see the Bank of England raise rates and risk crippling the already stagnant economic recovery. Hints of a possible rate hike have been circulating as Bank of England deputy governor Charlie Bean, has noted that if commodity prices continue to rise, interest rates will likely need to be adjusted as well. Given the volatility of currency markets, traders are advised to monitor the rate decision and the press conference following it, before establishing either long or short positions in FXB or other currency funds [also see Forget About Euro ETFs, British Pound ETFs Are The Real Danger].

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Disclosure: No positions at time of writing.