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ETF News And Commentary

Vikram Pandit led Citigroup (C - Analyst Report) throughout the financial crisis and was a well-known example of how badly things went for many of the big banks during this troubled time. Yet, Citigroup, unlike some of its competitors, just barely survived and now appears to be nearly on its feet again.

Although the company has come back a little and seems poised to be a global player in finance once more, it looks as though it will not be with Pandit at the helm, as he has stepped down as the CEO of the company. This marks a nearly five year tenure at the firm which was rocked by incredible events, a nearly 90% share price slump, and then the resurrection of the firm and the resumption of dividend payments as well (see Three Financial ETFs That Avoid Big Bank Stocks).

Still after all this and the apparent return of Citi as a major player, Pandit said, in a CNBC interview, that he felt as though now was the time to leave since Citi had stabilized their operations and is now in a decent position post-financial crisis. However, others are reporting that he was forced out either over pay differences or due to clashing strategy ideas, a strong possibility given the strange timing of the announcement just a day after the earnings call.

Yet even with the shakeup, many analysts remain relatively bullish on the company. The firm currently has a Zacks Rank of 3 or ‘hold’ while the industry rank is relatively favorable coming in the top 20% (also see Beware These Three Volatile Financial ETFs).

Furthermore, some are forecasting that the departure of Pandit will allow the company to either breakup into more profitable pieces or it will allow the firm to get back to its roots and do what it has done best historically. Either way, it appears as though the market doesn’t exactly hate the move, as the firm’s stock was up slightly over 1.5% in the day of the announcement.

With that being said, the company is certainly heading into a bit of uncertainty, especially given the strange timing and circumstances surrounding Vikram’s departure from the firm. Given this, some might want to reevaluate some of their investments in the financial sector as we learn more about how this $100 billion market cap firm will proceed now that it is without Pandit for the first time in half a decade.

A look at portfolio allocations could be especially important from an ETF perspective, as the company makes up a decent percentage of most financial products, and a sizable chunk of many more specialized funds in the financial ETF world. In fact, data from XTF.com suggests that over 100 ETFs hold Citigroup in their baskets while almost 3% of all of the company’s shares are held by these exchange-traded funds (read Does Your Portfolio Need a Financial ETF?).

Below, we highlight in brief detail the three ETFs which allocate the biggest percentage of their assets to Citigroup. While none of these are in danger at this time, all three put more than 7.5% of their assets in the company, suggesting that if you are holding or considering any of the following funds, you should be paying greater attention to the still unfolding situation at Citigroup:

Dow Jones US Financial Services Index Fund (IYG - ETF report) - This fund tracks a broad benchmark of American financial corporations, holding just over 100 stocks in its basket. Currently Citi takes the third biggest holding in the fund, accounting for just over 7.5% of assets.

The product is relatively popular among investors having amassed over $200 million in AUM while charging 47 basis points a year in fees. In terms of performance, YTD the product has been quite strong, adding about 23% in the time period while paying out a yield just over 1.1%. Currently, the fund has a Zacks ETF Rank of 3 or ‘hold’ (see Three Financial ETFs Outperforming XLF).

RevenueShares Financial Sector Fund (RWW - ETF report) - For a different approach to the financial sector, investors have RWW which takes a revenue-weighted approach. With this technique, firms with the biggest amounts of revenue have the biggest weight in the ETF, giving third biggest allocation (tied with JPM) to Citi with 7.8% of assets.

Despite its unique methodology, the fund hasn’t really caught on with investors, as the product has low assets and daily volume, suggesting a wider bid ask spread than others on the list. Still, the fund has performed admirably in 2012, adding more than 27% in the time period while yielding a little less than 0.7%. Additionally, the fund has a Zacks ETF Rank of 2 or ‘Buy’, beating out IYG from that perspective (read Do ex-Financial Funds Make Safer Dividend ETFs?).

PowerShares KBW Bank Portfolio (KBWB - ETF report) - This fund takes a modified market cap approach to banking stocks that are traded in the U.S., holding 24 stocks in its basket in total. At time of writing, Citigroup was the second biggest holding in the fund at 8.1% of assets, just trailing BAC and barely beating out JPM.

The product has attracted a decent following among investors as it has over $125 million in AUM and it does volume of about 420,000 shares on a daily basis. The product is also the cheapest of the three on the list, though its performance in 2012 has been in between the others, adding 24.5% while paying out a 1.65% from a 30 Day SEC perspective. Much like RWW, KBWB also has a Zacks ETF Rank of 2 or ‘Buy’.

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