State Street has three interesting financial sector ETFs that are now listed and trading. The three new funds are the
streetTRACKS KBW Bank
streetTRACKS KBW Capital Markets
streetTRACKS KBW Insurance ETF
ETF companies have created a lot of "me too" products lately, but these ETFs may have some promise, and I am especially interested in the Capital Markets ETF (KCE).
In general, investing in brokerage stocks, public exchanges and asset managers can be a way to add extra return in the financial sector. Simply put, bull markets and expanding economies may be most evident in this part of the market.
Take a look at
(CME - Get Report) or
(AX) for some evidence.
|Brokers In a Bull Market
|Source: Roger Nusbaum
Until the KCE came along, the capital markets portion of the financial sector had been very under-represented in the wave of new investment products over the last couple of years. The largest stocks in this subsector, like
, don't have enough weight in the broad financial sector ETFs to allow investors to capture the effect.
KCE isolates this area nicely. The fund's breakdown is 41.53% full-service brokerage, 22.12% asset managers, 16.02% back-office processing, 12.09% discount brokerage, and 8.22% publicly traded exchanges.
Digging further into the nuts and bolts, you might expect some very large holdings in the fund, and there are.
(GS - Get Report)
makes up 10%, Merrill Lynch 9.5% and Morgan Stanley 8.5%. This shouldn't be too surprising, because narrow subsector ETFs are likely to always be heavily concentrated in a few holdings.
KCE will not have much, if any, yield. I plugged its holdings into Morningstar's software and saw that the portfolio might yield 1.09%, but the expense ratio of the fund is 35 basis points, leaving 74 basis points. That is my calculation, and State Street has not announced a dividend.