This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Capital Markets ETF Offers Diversity

State Street has three interesting financial sector ETFs that are now listed and trading. The three new funds are the streetTRACKS KBW Bank (KBE), streetTRACKS KBW Capital Markets (KCE) and streetTRACKS KBW Insurance ETF (KIE).

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 Chicago Mercantile (CME) or Archipelago Holdings (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 Merrill Lynch (MER) or Morgan Stanley (MWD), 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. Goldman Sachs (GS) 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.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,960.57 -123.23 -0.72%
S&P 500 1,978.34 -9.64 -0.48%
NASDAQ 4,449.5640 -22.5440 -0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs