ETF XRAY

Look Under the Hood of Financial ETFs

By Carl Delfeld of the Chartwell ETF Advisor

Is now the right time to load up with financial sector exchange-traded funds? Even if you think that markets have over shot on the sell side, you still need to do your homework by looking undert he hood of the ETFs you are considering.

Take the example of a global financial sector ETF versus an international financial sector ETF. You might think that the holdings in each ETF basket are quite similar but you would be dead wrong.

Below are the top five holdings of the iShares Global Financials ETF (IXG)

Citigroup (3.8%)
BOA (3.8%)
HSBC (3.2%)
AIG (2.6%)
JP Morgan (2.5%)
Mitsubishi UFJ (1.9%)

Compare this with the top holdings in the Wisdom Tree Int’l Financials ETF basket (DRF)

HSBC (7.3%)
Lloyds (3.3%)
RBS (3.2%)
Barclays (3.0%)
ING (2.7%)
BNP Paribas (2.6%)

Both of these ETFs were up more than 2% yesterday. Which, if any, should you invest in right now? Go to Chartwell ETF right now and find out.

Materials is The Best Performing Sector YTD

Top three sectors and groups YTD… 1) Materials is averaging 21.77%, 2) Energy 14.69%; and 3) Utilities 11.91%. Of these three sectors materials have two ETFs up better than 30%, SLX up 38.65% and XME up 30.25%. The worse performing sector YTD is Financials with a 0.49% average return. KIE streetTRACKS KBW Insurance is doing the best with a 6.90% gain.

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Gulf Investors Attracted to ETF Financial Sector Leader HSBC

HSBC is a leading bank in many financial exchange-traded funds such as the Wisdom Tree Int’l Financials ETF (DRF) where it represents 7.3% of the ETF basket. Formerly known as the Hong Kong Shanghai Banking Corporation , it is a global powerhouse and earlier this year passed Citigroup as the largest bank in the world in terms of market value.

The Financial Times reported today that a second Gulf investor appeared on HSBC’s share register in less than two weeks on Tuesday as DIC Asset Management, part of Dubai International Capital, said it had bought a “substantial” stake in the bank.

DIC, which is owned by the government of the UAE, said it had bought the stake via its $2bn Global Strategic Equities Fund. It did not disclose the size of the stake or the price paid, beyond saying that the purchase made it “one of the leading shareholders in the company”. DIC’s move comes two weeks after Maan Abdulwahed al-Sanea, a Saudi billionaire, spent about £3bn building up a 3.11 per cent stake in HSBC.

The stake buying come as HSBC's share price is under pressure as the group issued its first ever profits warning in February in the wake of the meltdown in the US subprime mortgage market.

HSBC’s expansion strategy in China has also recently been dealt a setback by the reclassification of its main domestic partner into a significant state-owned bank, a change that would protect the Chinese lender from a foreign takeover. HSBC paid $1.75bn three years ago for 19.9 per cent of the Bank of Communications – the biggest stake allowed for a foreign investor under Chinese rules.

By Carl Delfeld of the Chartwell ETF Advisor

iShares Dow Jones US Financial Services (IYG)

As more deals occur in Europe, U.S. banks could feel the pressure on their global business. U.S. banks seeking growth have been on a drive to expand overseas. Earlier this year, Citigroup announced it would buy UK online bank Egg for about $1.1 billion to broaden its reach in the U.K. Citigroup is the number one position in iShares Dow Jones US Financial Services Index (IYG).
IYG reversed in March back into a column of X’s and maintains a demand status. This financial services ETF is trading well above its 50 & 200 day moving averages. [ 50 day $130.54 | 200 day $127.68]

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By DE Smith of MyPortfolioView