Financial services exchange traded funds are joining the broader market to the downside Wednesday, but there could be a potential catalyst looming for those ETFs focused on broker-dealers stocks.
Long rumored to be a takeover candidate, E*Trade Financial (NasdaqGM: ETFC) is back in focus a potential target. That could be impactful for broker-dealers ETFs that hold both shares of E*Trade and its potential suitors.
“What investors likely will start to wonder about in the months ahead is whether the expected rising interest rate climate will rekindle those old merger hopes,” writes Jon Ogg for 24/7 Wall Street.
If rising rates do reignite E*Trade takeover speculation, the company could become a target for rivals such as Charles Schwab (NYSE: SCHW) and TD Ameritrade (NasdaqGM: AMTD), according to 24/7 Wall Street.
The iShares US Broker-Dealers ETF (NYSEArca: IAI), which tracks U.S. investment banks, discount brokerages and stock exchanges. The $299.4 million ETF features E*Trade as its seventh-largest holding at a weight of 5.1%. Schwab and TD Ameritrade are IAI’s third- and sixth-largest holdings, respectively, combining for almost 13% of the ETF’s weight. [Broker-Dealers Lift This ETF]
Dow component Goldman Sachs (NYSE: GS), the largest U.S. investment bank, and Morgan Stanley, are IAI’s top two holdings. Those Wall Street giants combine for over 18% of IAI’s weight.