It is no secret that Financials based equity ETFs have been relative strength leaders for a good portion of 2012, and after last week’s holiday cheer rally, the sector sprung to life once more. To put this in context, Financial Select Sector SPDR (NYSEArca: XLF) has rallied 21.85% versus the S&P 500 Index up 12.60% during the same time period.
However, as we have pointed out in recent coverage of broad Financials based ETFs, some of these products such as XLF tend to be dominated by large cap “money center bank” names. This said, there exist specialized ETFs that concentrate on a sub-sector of Financials that is not tied to money center banks, but instead broker dealers, asset managers, trust and custody banks, as well as financial exchanges.
IAI (iShares DJ U.S. Broker Dealers) is the largest ETF in this sub-category, with approximately $43 million in assets under management. Currently, top holdings in the ETF are GS (8.75%), MS (7.13%), CME (6.42%), SCHW (6.22%), and AMP (6.19%). KCE (SPDR S&P Capital Markets) only has about $20 million in AUM currently, and a different make up in terms of its underlying constituents at the moment.
Top weightings lean more towards asset managers and custody banks than IAI which as we can see from the above breakdown, is concentrated largely within Brokerages and Investment Banks. KCE’s top holdings are FII (3.29%), BK (3.22%), BLK (3.19%), STT (3.13%), and GS (3.11%) and the fund has risen 17.64% year to date.
IAI on the other hand is up 5.61% YTD, trailing broad financial proxies such as XLF. For those portfolio managers whom believe that the Financials sector in general may be back in favor and have more room to run, IAI and KCE present two interesting ways to access a specific niche within the sector outside of the household name money center banks such as JPM, C, WFC, and BAC.
iShares DJ U.S. Broker Dealer
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.