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.
The SPDR S&P Capital Markets ETF (NYSEArca: KCE), an equal-weight rival to IAI, features E*Trade and Schwab as its ninth- and tenth-largest holdings, respectively. Those two stocks combine for 5.6% of the ETF’s weight.
Throw in the 2.6% weight to TD Ameritrade and KCE is a credible trade on E*Trade takeover speculation. However, the ETF is an even more credible play on the rapid growth of the ETF industry. The $175.9 million KCE holds shares of, in the following order, State Street (NYSE: STT), Invesco (NYSE: IVZ), BlackRock (NYSE: BLK) and WisdomTree (NasdaqGM: WETF). Those are four of the five largest U.S. ETF sponsors. [Wall Street ETF Awakens]
KCE also holds Janus Capital (NYSE: JNS), Bank of New York Mellon (NYSE: BNY), Northern Trust (NasdaqGM: NTRS) and Schwab, all of which have significant ETF exposure.
SPDR S&P Capital Markets ETF
ETF Trends editorial team contributed to this post.