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Top 10 U.S. Financial Sector ETFs

RKH (HOLDRS Merrill Lynch Regional Bank Trust) tracks no index but is a trust holding a fixed portfolio. The fund was launched in June 2000. These vehicles have benefits and risks which in addition to market risk are primarily concentration issues. In fact, it would be misleading to think RKH is a ⿿regional⿝ bank issue given its heavy weightings (below) in mega-banks. As time passes some issues may merge or even cease to exist. The proceeds are distributed to holders and the remaining issues grow in percentage. The fees are flat and fixed by the trustee. Trading activity is restricted to 100 share round lot trades. AUM currently is $325M and average daily trading volume is 335K shares. The current dividend is $.96 making the yield 1.25% and YTD performance as of June 2011 is -10.50%.

Data as of June 2011

RKH Top Ten Holdings & Weightings

  1. JPMorgan Chase & Co (JPM):                                    23.43%
  2. Wells Fargo Company (WFC):                                    19.49%
  3. U.S. Bancorp (USB):                                                  17.28%
  4. PNC Financial Services Group Inc. (PNC):                  7.43%
  5. State Street Corporation (STT):                                   5.52%
  6. Bank of New York Mellon (BK):                                   4.75%
  7. Bank of America Corp DE (BAC):                                 4.08%
  8. Northern Trust Corporation (NTRS):                           4.07%
  9. BB&T Corp (BBT):                                                       3.13%
  10. SunTrust Banks Inc (STI):                                           2.99%

  

 

KIE (SPDR KBW Insurance ETF) tracks the KBW Insurance Index which is a float adjusted market-modified-market capitalization-weighted index. Beyond that being a mouthful, includes personal and commercial insurance, property/casualty insurance, life insurance, reinsurance, insurance brokerage and financial guarantee. The fund was launched in November 2005. AUM is at $245M and averaged daily trading volume is 515K shares. The expense ratio is .35%. The dividend is $.48 making the current yield 1.10% and as of June 2011 the YTD return is -5.80%.

Data as of June 2011

KIE Top Ten Holdings & Weightings

  1. MetLife Inc. (MET):                                         9.24%
  2. The Travelers Companies, Inc. (TRV):            8.26%
  3. Prudential Financial, Inc. (PRU):                      7.04%
  4. Aflac, Inc. (AFL):                                              6.30%
  5. Aon Corp. (AON):                                            5.41%
  6. Ameriprise Financial Inc (AMP):                       4.82%
  7. Principal Financial Group (PFG):                     4.29%
  8. Marsh & McLennan Companies, Inc. (MMC):  4.25%
  9. Lincoln National Corp. (LNC):                          4.12%
  10. Hartford Financial Services Group, Inc. (HIG):            4.10%

 

 

FXO (First Trust Financials AlphaDex ETF) follows the StrataQuant Financials Index which is an ⿿enhanced⿝ index developed, maintained and sponsored by the NYSE Euronext. It creates financial stocks for the index from the Russell 1000 index. The fund was launched in May 2007. AUM is currently near $110M while average daily trading volume is near 345K shares. The expense ratio is .70%. The dividend is currently at $.23 and the current yield as of June 2011 is 1.63% and YTD return -2.00%.

 

Data as of June 2011

FXO Top Ten Holdings & Weightings

  1. Assured Guaranty, Ltd. (AGO):                                    1.24%
  2. Alliance Data Systems Corporation (ADS):                   1.21%
  3. Fidelity National Financial Inc. (FNF):                          1.19%
  4. Hartford Financial Services Group, Inc. (HIG):              1.17%
  5. The Travelers Companies, Inc. (TRV):                        1.16%
  6. Chubb Corporation (CB):                                             1.16%
  7. Capital One Financial Corporation (COF):                    1.15%
  8. Arch Capital Group, Ltd. (ACGL):                                1.14%
  9. NASDAQ OMX Group, Inc. (NDAQ):                           1.14%
  10. Ares Capital Corporation BDC (ARCC):                       1.14%

KCE (SPDR KBW Capital Markets ETF) tracks the KBW Capital Markets Index which consists of firms which we would commonly refer to as brokers and investments banks. The fund was launched in November 2005. AUM is low at $65M which may in part be due to industry consolidation. Average daily trading volume is around 65K shares. The expense ratio is .35%. The dividend is only $.15 making the current yield as of June 2011 .40%. Much of the low yield is due to forced government dictates for large broker/dealers after the financial crisis of 2008. YTD performance is -10.25%.

An alternative choice would be IAI (iShares Dow Jones U.S. Broker-Dealer ETF) which has similar features and results to KCE but with a higher fee at .48%.

Data as of June 2011

KCE Top Ten Holdings & Weightings

  1. State Street Corporation (STT):                       7.66%
  2. Morgan Stanley (MS):                                      6.73%
  3. Goldman Sachs Group, Inc. (GS):                   6.28%
  4. Charles Schwab Corporation (SCHW):                        6.16%
  5. CME Group, Inc. A (CME):                              5.87%
  6. Invesco Ltd. (IVZ):                                           5.07%
  7. T. Rowe Price Group (TROW):                                    4.85%
  8. Lazard, Ltd. (LAZ):                                           4.85%
  9. Franklin Resources (BEN):                              4.69%
  10. Raymond James Financial, Inc. (RJF):             4.57%

 

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize more oriented to XLF than other issues from ProShares and Direxion.

The financial sector has been a drag for investors since mid-2010 as continued uncertainties remain over the fallout from the 2008 financial crisis. Since many banks still own much in the way of toxic assets not marked to cost versus market values investors don⿿t know the extent of potential losses. Further, many banks face litigation arising from mortgage packaging and sales practices. As this is, written Bank of America (BAC) has offered an $8.5 billion settlement to plaintiffs alleging misleading sales practices. This might be a good thing to clean this mess up but looking at the details one is struck by the following statement: ⿿the settlement does not release investors⿿ securities law or fraud claims based upon disclosures made in connection with their decision to purchase, sell, or hold securities issued by the trusts.⿝

In addition, financial companies have an unknown exposure to Euro Zone debt which is still haunting the region. Another bailout is likely there which caps the upside for many of these institutions.  

For further information about portfolio structures using this or other ETFs see www.etfdigest.com .

You may address any feedback to: feedback@etfdigest.com   

(Source for holding data is from ETF Database and from various sponsors.)

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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