Assets: $616.7 million

Holdings: IYF holds some of the nation’s largest banks and financial institutions, including JP Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and Bank of America (NYSE: BAC).

Objective: IYF tracks the Dow Jones U.S. Financials index.

What You Should Know

• 41.4% of the fund  in banks; 26.9% is in financial services; 13.1% is in non-life insurance; 11.8% is in real estate investment trusts
• The fund as a 0.48% expense ratio
• There are 258 holdings in the ETF
• Since the market’s low on March 9, IYF is up 121%

The Latest News

• Wells Fargo (NYSE: WFC) reported that its profit jumped 61%, but its loan losses also jumped to more than $5 billion. Wells Fargo is simply getting in line with other big banks, which have also reported big losses from loans gone bad, reports the Associated Press.
• Morgan Stanley (NYSE: MS) beat analysts’ expectations by reporting consolidated net revenues of $8.7 billion. The profit ends a three-quarter losing streak, and it can be attributed to Morgan Stanley’s new conservative stance in the wake of the financial collapse, Reuters reports.
• JPMorgan Chase (NYSE: JPM) set a high bar for earnings, but Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) failed to reach it when they announced their third-quarter results this morning. Goldman Sachs reported $3.19 billion in trading profits that beat expectations, but the stock dropped on declines in investment banking revenues. Citigroup reported a smaller loss than expected, but credit losses are high, report Sara Lepro and Tim Paradis for the Associated Press.
• The rally may not be indefinite, since banks still have their share of problems. But there’s still opportunity there, since financial ETFs are still about 50% off their 2007 highs. (Play the capital markets recovery).

For past ETF Spotlights, visit our ETF Spotlight category.

Although many investors shudder at the mention of the word, the financial sector will one day be in favor again. The financial services sector has been a standout, reports Money and Markets on iStock Analyst.

• iShares Dow Jones U.S. Financial Services (NYSEArca: IYG): up 21.6% year-to-date

The rally may not be indefinite, since banks still have their share of problems. But there’s still opportunity there, since financial ETFs are still about 50% off their 2007 highs. (Play the capital markets recovery).

There are about 34 ETFs that track the financial sector, including:

• SPDR Select Sector Financial (NYSEArca: XLF): up 23.7% year-to-date

• iShares Dow Jones U.S. Financial (NYSEArca:  IYF): up 20.5% year-to-date

• Vanguard Financials (NYSEArca: VFH): up 18.8% year-to-date

XLF is focused exclusively on large-cap financial stocks. IYF and VFH own some smaller companies as well, but all three are well-diversified within the financial sector.

Make sure that you are well educated on market trends and follow the trend lines, especially as times are tenuous for financial companies as they work to get their books back in order. We follow the 200-day moving average as both the entry and exit point. This eliminates any emotional interference and keeps losses to a minimum. Read more about trend following in The ETF Trend Following Playbook.

For more stories about the financial sector, visit our financial category.

For a majority of companies, third-quarter results could be below those of 2008, with per-share profits for the S&P 500 at a projected drop of 15.4%. More than 340 businesses could see a year-over-year drop in profits, according to Zacks. Projected revenues show median company sales may drop 7.2%, with more than 360 companies expected to experience a year-over-year drop in earnings.

There are a lucky few that are forecasting actual earnings growth compared to last year:

Homebuilders. First off, conditions were already deteriorating and mortgages were hard to come by last year. Secondly, more new and existing home sales translates to a more stable housing market.

• SPDR S&P Homebuilders (NYSEArca: XHB): up 35.4% year-to-date

Insurance. Insurance companies can potentially pull off double-digit growth. Some firms can bounce back higher from prior-year losses while others may see true growth. Property and causality insurers have been sparred by a calm hurricane season so far, and most insurers benefited from a recovering financial market.

• KBW Insurance (NYSEArca: KIE): up 33.2% year-to-date

Health Care. The medical sector is still raking in the profits. The sector is not correlated to commodity prices and is less economically sensitive. The result is that medical companies are showing both revenues and earnings growth this quarter.

• Vanguard Health Care (NYSEArca: VHT): up 12.7% year-to-date

On the flip side, here are a few sectors that could report contractions:

Commodity. Commodity-related companies reported strong profits last year and as a result, energy and metals companies may show drops in third-quarter profits this year.

• iShares Dow Jones U.S. Oil & Gas Ex Index (NYSEArca: IEO): up 33.8% year-to-date

• PowerShares DB Base Metals (NYSEArca: DBB): up 53.7% year-to-date

Banks. Many banks still remain unprofitable. High joblessness, high level of foreclosures and poor real estate market all affect banks. The result is a projected report of losses for the sector.

• iShares Dow Jones U.S. Financial Sector Index Fund (NYSEArca: IYF): up 20.1% year-to-date

Max Chen contributed to this article.

Despite Monday’s advances, the technical picture looks weak for financial companies, says  Michale Kahn for Barron’s. Kahn explains that putting money into your bank account may be a better bet than putting money into banking stocks. Is it true?

A weak sector may look enticing and cheap to investors, and many investors who are feeling encouraged by Goldman Sachs’ (GS) stellar earnings report might be wondering if it’s time to wade back in.

To be sure, financials have made good strides since the March 9 market lows. Some ETFs are up 80% and 90% or more since then. However, most of these ETFs still remain below their long-term trend lines. Our strategy is to focus on those areas that have crossed above this point.

Earnings season is only just beginning – can other banks that have yet to report match Goldman Sachs’ earnings? A clearer picture of this sector will emerge by the end of the week. Upcoming earnings include: J.P. Morgan Chase (JPM) tomorrow and BB&T (BBT), Citigroup (C) and Bank of America (BAC) on Friday.

• iShares Dow Jones U.S. Financial Sector (IYF): down 6% year-to-date

• Financial Select Sector SPDR (XLF): down 4.7% year-to-date

• Vanguard Financials (VFH): down 7.6% year-to-date

For more stories about financials, visit our financial category.

The bank’s profit may be the largest since it set an earnings record in 2007.

Meredith Whitney, the founder of Meredith Whitney Advisory Group, gave Goldman Sachs the only buy recommendation among the eight banks she covers and says shares may climb 30%, say John Fineman and Ambereen Choudhury for Bloomberg.

ETFs can be a great way to play the financial sector, since you don’t have to try and pick a few winners among dozens of names. With a number of holdings in any given ETF, you have the opportunity to play a broad range of names and spread around the risk.

• Financial Select Sector SPDR (XLF): down 3.6% year-to-date; GS is 6.7%

• iShares Dow Jones U.S. Financial Sector (IYF): down 5.4% year-to-date; GS is 4.6%

• iShares Dow Jones U.S. Broker-Dealers (IAI): up 22.8% year-to-date; GS is 10.9%

Of the 300-plus banks that were going to participate in the federal funding program, many have withdrawn because of the strict requirements and limits, reports Stephen Labaton for The New York Times. The program would reopen the application window for banks with assets below $500 million, using the proceeds from repayments that the Treasury is anticipating from big banks.

Louis Story and Eric Dash for The New York Times report that federal policymakers have been creating ways to ensure that pay is more closely linked to performance. The newer rules would even apply to those banks, hedge funds and private equity firms that did not receive TARP funding.

• Regional Bank HOLDRs (RKH): down 10.6% year-to-date

• iShares Dow Jones US Financial Sector (IYF): down 4.1% year-to-date

After Citigroup (C) announced that it was making money in the first two months of the year, some other major financial institutions, like Bank of America (BAC), JP Morgan Chase (JPM) and HSBC Holdings, also broke out in a show of strength and rode the ensuing wave of optimism, reports David Gaffen for The Wall Street Journal. Bank shares are up more than 40% since last week.

Looking at the fundamentals, borrowing costs have dramatically declined with federal-fund rates being greatly cut down, which allow banks to borrow for basically nothing, and banks are able to receive funds from the Federal Reserve. Furthermore, banks are still able to lend at higher rates, and that is where their profits are coming.

Improvements are also coming through with normalized hedging strategies and wider bid-offer spreads because of a reduced number of companies facilitating trades. It is thought that that ongoing deterioration in loan quality and expectations of more write-downs will impede regular banking in the future.

Wells Fargo (WFC) and a growing list of other bankers are vexed by restrictions imposed by the TARP program, which has affected lending, foreclosures, pay, and job perks, writes Ari Levy for Bloomberg. Now, some just want return the money. Wells Fargo had to reduce dividends by 85% to 5 cents a share and it made a quarterly payment of $371.5 million for interest on the $25 billion TARP investment.

The government is now going forth with a “stress test” to see which of the 19 largest U.S. banks need more capital. It is believed that the test will protect the banking system and help see that the necessary capital is provided for a more sound financial system.

Meanwhile, the regional banking sector has been side-stepping much of the tumult lately.

• SPDR Financial (XLF): up 18.9% in the last week; up 7.3% in the last month; BAC is 5.5%; JPM is 12.3%; WFC is 10.3%

• iShares Dow Jones U.S. Financial Sector Index Fund (IYF): up 16.6% in the last week; up 4.2% in the last month; BAC is 2.9%; JPM is 10%; WFC is 5.6%

• Rydex Equal Weight Financials (RYF): up 13.9% in the last week; up 0.9% in the last month

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.

The latest bank rescue plan by Treasury Secretary Timothy Geithner was unveiled today, but is there any more faith restored into the taxpayers and voters, and is there more chance markets and exchange traded funds (ETFs) can begin to heal?

The revised banking rescue plan by the Obama administration has policy-makers hoping Wall Street can be part of the solution. Policy-makers did reveal their feelings that the major U.S. banking institutions are insolvent, reports Aaron Task for ClusterStock, something that government seems loath to consider.

While the plan does address key issues such as transparency and accountability  on behalf of the banks receiving bailout money, the main problem was the government increasing the lending, which is addressed in the approach.

After the bailout plan was announced, it wasn’t enough to keep stocks afloat, and stocks continued to fall midday. Ahead of the announcement, the Dow Jones Industrial Average was already down about 200 points. It fell even further afterward, reports Sara Lepro for the Associated Press.

According to sources, the plan comprises $50 billion in the form of measures for curtailing home mortgage foreclosures. Intending to shore up nearly $1.5 trillion in new lending and handling of troubled assets, the proposals of the plan are aimed in three main areas:

• Additional capital for banks.
• $1 trillion for financing for consumers and businesses.
• Public financing for investors that purchase troubled assets.

Swiss bank UBS (UBS) reported a larger-than-expected loss of $6.9 billion in the fourth quarter and announced it would cut another 2,000 jobs. Banks that are under stress to receive the injections are pending, as regulators figure out whether these firms could withstand a downturn even worse than the current one.

The major component to the problem is that nobody really knows what is on the banks’ books, so the “stress test” and further examination should reveal more, as well as restore trust, Obama paraphrased in last night’s speech, reported by David Cho and Lori Montgomery for The Washington Post.

• iShares Dow Jones U.S. Financial Sector Index Fund (IYF): down 12.2% for the month

• Financial Sector Select SPDR (XLF) down 14.4% for the month

Investors are feeling a bit empowered after the $20 billion shot in Citigroup’s arm and the $306 billion guarantee for risky assets, reports Tim Paradis for Associated Press. Had Citigroup’s share price remained below the key $5 mark, it could have led to a new wave of selling.

Obama has also chosen his financial team and given some hope to the markets, calling in another economic stimulus.

His plan targets saving or creating 2.5 million jobs during the next two years. Any plan is expected to exceed the $175 billion Obama proposed during the campaign.

• iShares Dow Jones U.S. Financial Sector Index Fund (IYF): down 61.7% year-to-date; Citigroup is 4.8%

• Vanguard Financials (VFH): down 60.8% year-to-date; Citigroup 5.1%

On the home front, the nationwide sales of homes fell 3.1%, a number larger than anticipated. The economy and its weakness has made borrowers wary, despite prices falling to their lowest level in five years.

Sales of existing homes fell 3.1% to a seasonally adjusted annual rate of 4.98 million units in October, from a downwardly revised pace of 5.14 million in September, reports Alan Zibel for Associated Press. Sales in the Western region of the nation remain up, as buyers in Las Vegas and Orange County are buying distressed properties at bargain prices.

Nationwide, estimates are that sales of distressed properties made up 45% of all property sales in October.

• iShares Dow Jones Cohen and Steers Realty Majors Index Fund (ICF): down 59.4% year-to-date

• SPDR DJ Wilshire REIT (RWR): down 57.7% year-to-date

This is the first time in 76 years that an election is taking place during a financial meltdown/crisis. Ben Steverman for BusinessWeek reports that based on recent polls, the coincidence seems to have boosted the chances that Illinois Sen. Barack Obama, the Democratic nominee, will defeat Republican Arizona Senator John McCain on Nov. 4.

The biggest myth concerning the stock market and the election is that the market is waiting to see who wins the election. If the polls are to be believed, there is little doubt who will win at this point in time and stock traders are used to weighing probabilities, looking at data, and making investing bets based upon them.

For example, a win for Sen. Obama would send alternative energy ETFs and stocks higher, while health care would suffer based on the notion that Obama would crack down more on high malpractice insurance costs and their effect on the overall health care industry, reports Paul R. LaMonica for CNN Money.com.

An ETF that could be impacted is Van Eck Market Vectors Global Alternative Energy (GEX).

A win for McCain, the Republican party candidate, would send aerospace and defense stocks and ETFs into the air, but coal and ethanol would wither. Nuclear energy would also benefit under McCain’s presidency.

PowerShares Global Nuclear Energy Portfolio (PKN) could be impacted in a McCain win.

As the financial headlines remind us daily, the next president will have to answer two important questions: How much will his proposals cost, and where will we get the money? This is especially true in regards to America’s aging infrastructure, which is deemed the “$1.6 Trillion Question.”

Over the next five years, we could potentially need $1.5 trillion to expand and modernize America’s infrastructure problems. Harold L. Sirkin for BusinessWeek says that infrastructure expenditures we make today are intended to work for us for the next 30 to 100 years. Investing in infrastructure creates value for the economy, which increases our competitiveness.

• iShares S&P Global Infrastructure Fund (IGF)

• Market Vectors Steel (SLX)

One simple question with no simple answer has centered around the small-business owners of the world – the “Joe the Plumbers,” if you will. First, the definition of small business varies, with a two-person enterprise qualifying, as well as a construction company with $33.5 million or less in sales, according to the Small Business Administration.

Sen. Obama’s plan would raise the marginal tax rate on incomes above $250,000 a year to 36% and 39.6%, from the current 33% and 35%, effectively returning top tax rates to their levels during the 1990s. Sen. McCain has proposed reducing corporate tax rates from 35% to 25%, but that would only potentially affect about a quarter of small-business owners, reports Amy Schatz for The Wall Street Journal.

Sen. Obama would raise capital gains tax rates for families earning more than $250,000 to 20% from 15%. But the Obama plan would eliminate capital gains taxes for investors and entrepreneurs in small firms. Neither candidate is concrete on definitions or restrictions and benefits when it comes to this topic.

How are both candidates going to preserve our technological innovation as well as expand on it? Their visions are polar opposites and the gap is widening at $60 billion. McCain’s deal seeks to encourage innovation by cutting corporate taxes and ending what he calls “burdensome regulations” that he says inhibit corporate investment.

Sen. Obama feels that the United States must compete far more effectively against an array of international rivals who are growing more technically adept. Obama looks to the federal government to finance science, math and engineering education and the kind of basic research that can produce valuable industrial spinoffs, report William J. Broad and Cornelia Dean for The New York Times.

• Technology Select Sector SPDR (XLK)

Jackie Calms for The Wall Street Journal reports that there are two anecdotes for the economic crisis. McCain claims he will help create more jobs in America, present tax cuts to create more jobs and help protect life savings. Obama claims he will create five million new high-wage jobs simply by investing in alternative energy, and create two million more jobs by rebuilding infrastructure, starting with roads and schools.

Emily Brandon for US News & World Report reports that the “icing” on the economic packages proposed include Obama’s 90-day moratorium on foreclosures from banks that receive capital from the Federal government. McCain presents a $300 billion plan for government to purchase unaffordable mortgages from troubled borrowers and exchange them for less-expensive fixed-rate loans backed by the Federal Housing Administration.

• SPDR Homebuilders (XHB)

If Sen. McCain or Sen. Obama lives up to even part of his agenda, it will make a difference not only to your tax bill next year but also to your family’s long-term financial security, reports Pat Regnier for CNN Money.

Whether you’re talking about financial market regulation, income taxes, retirement savings or paying for health care coverage, Obama is much more likely to have the federal government intervene in the name of “American families”. McCain, on the other hand, puts more faith in the marketplace and both individual and corporate enterprise.

• iShares Dow Jones US Financial Sector Index Fund (IYF)

Despite the worsening economic picture, though, neither candidate has signaled any intention to scale back his plans. And the head of the Senate Finance Committee, which would have a big say in just about everything the next president hopes to accomplish on health care, says he won’t let the current financial crisis stop the committee from tackling it. Both McCain and Obama have big-ticket ideas about health care reform and how to obtain it, reports Kevin Freking for Associated Press.

While both Obama and McCain propose overall cuts, is there any specifics that are guaranteed? Some analysts suggest that investing in muni-bond ETFs is an attractive option, as big federal budget deficits are looming and expected to grow, reports The Wall Street Journal.

• PowerShares Insured National Municipal Bond Portfolio (PZA)

In reference to McCain’s housing proposal, experts are skeptical, as the toxic loans have been sliced and diced so much they are hard to re-package. Julie Hirschfiled Davis for Associated Press says even if the government did gain access to the mortgages, it would have to pay far more than they would ever be worth, housing specialists said Wednesday.

As the election day nears, both candidates have done their best to put out proposals that address the specific economic problems that appear most dire to them.