Wednesday’s ETF To Watch: Financial Services Fund (IYG)

by on April 13, 2011 | ETFs Mentioned:

Most commodity markets took a tumble Tuesday as Goldman Sachs issued a warning that oil prices were due for a correction, which along with more poor news out of Japan, prompted oil prices to sink over 3.5% in the session. Equities also fell sharply as all major indexes sank by roughly a percent on the day mostly thanks to weakness in the natural resource sector as well as some concerns over U.S. government budget cuts. While the past few weeks have been mostly dominated by headlines overseas, like the tragedy in Japan or the crisis in Libya, this week will shift the focus back to the States, as earnings season kicks off in full force [see also Three Country ETFs That Could Benefit From Triple-Digit Oil].

Today, prior to market open, banking giant JP Morgan Chase will release their most recent quarter’s earnings. JP Morgan is considered one of the “big four” banks in the U.S. (along with Bank of America, Citigroup, and Wells Fargo), and is home to over 225,000 employees. The company’s 2010 revenues totaled just over $100 billion, with over $1 trillion in assets under management. Stationed in New York City, the firm has its hands in investment banking, asset management, private banking, and many other services for numerous clients around the world [see also Ten Commandments Of ETF Investing].

Analysts are calling for the bellwether to report EPS of $1.16 with revenues just over the $25 billion dollar mark. JP Morgan has exceeded their last four earnings reports by over 10%, which is good news to investors, but positive marks may be overcast by a bad outlook. Analysts are predicting the year over year sales growth for the quarter to be almost -10%, with the 2011 fiscal year expected to see sales shrink by roughly 3%. With a shaky forecast for the future, the company’s share price may take a hit either way, depending on the outlook they give, and what they are doing to combat their shrinking revenues [see also All-ETF Portfolio For Cheapskate Investors: How Low Can We Go?].

With this major earnings report on tap, today’s ETF to watch will be the iShares Dow Jones U.S. Financial Services Index Fund (IYG). This ETF tracks the Dow Jones U.S. Financial Services Index, which measures the performance of the financial services industry segment of the U.S. equity market including real estate and general finance. JP Morgan Chase ranks as the top holding (12.4%) followed by the remaining “big four”: Wells Fargo (10.9%), Bank Of America (9.3%), and Citigroup (8.8%). IYG has had a strong 2011, returning just over 2.6% with a dividend yield of approximately 0.5%. With JP Morgan accounting for a significant portion of this fund, its earnings report will have a major role in IYT’s performance today.

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Disclosure: No positions at time of writing.