For Immediate Release
Chicago, IL – May 22, 2012 - Stocks and funds in this article include: JP Morgan (JPM - Analyst Report) ), PowerShares S&P SmallCap Financials Portfolio (PSCF - ETF report) ), UBS E-TRACS Wells Fargo Business Development Company ETN (BDCS - ETF report) ), First Trust NASDAQ ABA Community Bank Index (QABA - ETF report) ). Eric Dutram looks at three ETFs which can allow investors to keep exposure to the financial sector without dealing with the issues of the big banks.
Three Financial ETFs That Avoid Big Bank Stocks written by Eric Dutram of Zacks Investment Research:
The past month has been pretty unkind to the big banks for a variety of reasons. Speculation continues to build regarding a broad European default centered around Greece which could trigger a number of issues for many banking stocks in the near term.
Beyond this, the focus has been on JP Morgan (JPM - Analyst Report) , often considered the best run big bank on Wall Street after the crisis of 2008. However, the firm has been under fire as of late thanks to a massive $2 billion trading loss at the company’s London desk (see more on ETFs at the Zacks ETF Center).
Although the loss was relatively small given that the trade was over $100 billion, the move is causing many to question the ability of large banks to police their own offices and properly manage their own trading desks without more government supervision. In fact, many regulators are already reviewing the situation while Fitch Ratings has lowered the firm’s credit rating by one notch to ‘A+’.
The big dollar amount of the loss has also renewed political calls for more banking oversight, a trend that has only been exacerbated by the upcoming elections. Now, thanks to the perception that if this can happen to JPM it can happen to anyone, along with the political softball that this situation has provided many in Congress, many are forecasting that more regulation could be on the way for the sector (also see The Complete Guide to Preferred Stock ETF Investing).
Overall, the focus has been on the return of the Glass-Stegall Act, tougher draft rules on the Dodd-Frank bill or the so-called ‘Volcker Rule’. With these potentially stiffer rules, the profitability of banks could suffer across the board while their future activities could be limited as well.
In addition to this, there are also worries that JPM could see even greater losses stemming from the unwinding of its trade which could push the $2 billion loss far higher. With JP Morgan facing this issue there are also concerns that similar problems could be underneath the surface of many other large banks causing many investors to head for the exits in the space.
In fact, over the past month, XLF has fallen by about 4.7%, while more focused products such as IYG and RKH have fallen by even greater amounts; 6.7% and 9.3%, respectively, in the time period (read Three Financial ETFs Outperforming XLF).
Fortunately, the weakness hasn’t permeated all segments of the financial sector and there are some good choices left in the space. In particular, a focus on smaller banks or more obscure segments of the financial ETF world could be the best way to go in this heightened risk environment.
Furthermore, looking at more U.S. focused securities could help to insulate investors from the worst of the European debacle, a situation which could impact many large banks even if further regulations are not realized. For investors looking to apply this approach, any of the following three financial ETFs could be great picks that stay in the sector but avoid big bank exposure:
For the rest of this ETF article, please visit Zacks.com at: https://www.zacks.com/stock/news/75543/three-financial-etfs-that-avoid-big-bank-stocks
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros https://at.zacks.com/?id=113
Follow Eric on Twitter: http://twitter.com/ericdutram
Join Zacks on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Contact: Eric Dutram