This Day On The Street
Continue to site
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

Financial ETFs to Avoid Political Risk

By Michael Johnston of ETF Database

Traditionally, investments in emerging markets such as India and China have been viewed as riskier than investments in developed economies. Part of this perceived additional risk is related to less developed financial markets and regulatory oversight; the lack of standardized reporting and robust audit requirements and restrictions on repatriation of assets creates the potential for significant inefficiencies.

Another big part of this risk is political in nature; unstable emerging market governments have a long history of nationalizing private companies. Ranging from oil companies in Venezuela to copper mines in Chile and banks in India, these events have stuck in the minds of investors, and have long been held up as justification for an additional risk premium demanded from emerging markets investments.

But the last two years have brought a reshuffling of the global totem pole that has caused investors to rethink the assumption that economies classified as "emerging" are inherently more risky than those classified as "developed." Nearly every developed economy has completed a bailout in some form, giving governments a material ownership interest in everything from banks to automakers.

Moreover, U.S. President Obama threatened to levy a windfall profits tax on energy companies, and Congress recently passed a sweeping health care overhaul that could materially impact the operations and profitability -- both positively and negatively -- of industries from insurance providers to device manufacturers. With a bill now being kicked around Capitol Hill that could dramatically change the way everyone from Harley Davidson (HOG - Get Report) to Goldman Sachs (GS - Get Report) trades derivatives, it appears that the financial sector is next up.

The proposed overhaul of regulation of the financial industry is far from final, and the ultimate impact on profitability of Wall Street is a big unknown. The uncertainty now hanging over the sector has created anxiety among investors and pushed trading volumes and volatility in financial exchange-traded funds through the roof in recent sessions. While some investors thrive on this volatility, others have begun looking for ways to establish exposure to financial companies that doesn't involve significant political risk.

There are a handful of global financial ETFs available, but most of these companies maintain significant U.S. allocations. The iShares S&P Global Financials Index Fund (IXG), for example, allocates about a third of its holdings to the U.S. and another 10% to the U.K. It may sound unconventional, but investors looking for financial exposure without all the political risk may be best served by turning to emerging markets financials ETFs.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CHIX $12.26 -1.01%
GS $164.11 -0.11%
HOG $47.83 -0.33%
AAPL $93.74 -1.15%
FB $117.58 0.73%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs