Consequently, the iShares MSCI Europe Financials ETF (NYSEArca: EUFN), which tracks European financial companies, could be among the hardest hit if the Brexit passed. EUFN includes a 31.2% tilt toward U.K. companies, including HSBC Holdings 8.2% of the fund’s portfolio and Lloyds Banking Group 3.9%.
Looking at U.S. markets, broad financial sector ETFs could come under fire, including the Financial Select Sector SPDR (NYSEArca: XLF), iShares U.S. Financials ETF (NYSEArca: IYF) and Vanguard Financials ETF (NYSEArca: VFH), along with bank specific plays such as the SPDR S&P Bank ETF (NYSEArca: KBE) and PowerShares KBW Bank Portfolio (NYSEArca: KBWB).
These sector ETFs include large tilts toward financial firms like Morgan Stanley (NYSE: MS), JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS), which each include a large U.K. staff supporting operations who could be impacted by a Brexit.
Related: Gold ETF Downside Limited Even if Brexit is Defeated
ETF investors can also hedge against a potential fallout with alternative strategies as well. For example, traders can hedge the sector through various levels of leveraged inverse strategies. The ProShares Short Financials ETF (NYSEArca: SEF) takes the single inverse or -100% of financial stocks, while the ProShares UltraShort Financials (NYSEArca: SKF) takes a leveraged -200% of financials. Additionally, for the more aggressive bearish trader, the ProShares UltraPro Short Financials (NYSEArca: FINZ) and Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ) take the -3x or -300% performance of the financial sector.
Moreover, one can also consider the S&P 500 Ex-Financial ETF (NYSEArca: SPXN) if investors believe the financial sector will continue to underperform the broader equities market even after the volatility has dissipated. SPXN focuses on S&P 500 companies but excludes the financials sector.
For more information on Brexit, visit our Brexit category.