Increased trading activity has helped the broker dealers exchange traded fund outperform the broader financial sector.
The iShares US Broker-Dealers & Securities Exchanges ETF (NYSEArca: IAI) increased 9.5% over the past three months while the S&P 500 Financial Sector rose 2.0%.
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The ongoing earnings season has revealed rising trading activity among big Wall Street banks, potentially signalling a end to a multi-year slump in fixed-income activity. Last week, Citigroup (NYSE: C) announced fixed-income revenue surged 35% to $3.47 billion in the third quarter and J.P. Morgan & Chase (NYSE: JPM) posted $4.33 billion from the business, Bloomberg reported.
“It was a situation where we were firing on all cylinders,” Marianne Lake, JPMorgan’s chief financial officer, said. “There were a number of catalysts in the market, not just Brexit, but also central-bank actions, money-market reforms, and we had good conditions to monetize the flow and clients motivated to act.”
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On Monday, Bank of America (NYSE: BAC) revealed its best third quarter for fixed-income trading in five years after a 39% jump in the business driven by rates trading and benefits from debt-underwriting, reports Laura J Keller for Bloomberg.
“The revenue beat came mostly on the trading side, which was nearly $1 billion better than expected,” Chris Kotowski, an analyst at Oppenheimer & Co., said in a note.
However, market observers warn that fixed-income trading activity could slow down during the final months of the year in line with normal seasonal trends. John Gerspach, Citigroup’s chief financial officer, said that the past two years have seen roughly 20% drops in markets revenue.
“December usually is a pretty light month,” Gerspach said. “There’s certainly nothing to indicate right now that that’s going change.”
IAI provides exposure to U.S. investment banks, discount brokerages and stock exchanges. Top holdings include Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Charles Schwab (NYSE: SCHW), CME Grouop Inc Class A (NYSE: CME) and Intercontinental Exchange (NYSE: ICE). Goldman Sachs and Morgan Stanley are slated to report third quarter earnings on Tuesday and Wednesday, respectively.
For more information on the financial sector, visit our financial category.
iShares US Broker-Dealers & Securities Exchanges ETF