A Burst of M&A Activity Could Help Support Financial Sector ETFs

After the coronavirus pandemic put many businesses on hold for a year, companies have kicked off an unprecedented deal-making spree, bolstering banks and financial sector-related exchange traded funds.

According to Dealogic data, over the first eight months of 2021, companies announced mergers and acquisitions worth over $1.8 trillion in the U.S. and more than $3.6 trillion globally, the highest figures at this point of any year since at least 1995, the Wall Street Journal reports.

The sudden M & M&A activity has helped add new fees for banks that are backing the deals. For example, Goldman Sachs Group Inc., the top deal-making shop on Wall Street, enjoyed over $1 billion in fees for each of the three last quarters. The bank brought in fees this high only once in the decade before the pandemic.

Looking ahead, observers project advisory revenue could continue to support banks through the rest of the year as many of the year’s biggest transactions are still pending. Bankers also anticipate things to get even busier as the summer hiatus ends and decision-makers come back to work. Many factors support the outlook, including a positive economic outlook, elevated corporate cash levels, flush private-equity firms, and target-hunting SPACs.

“All of the ideas that had been percolating in the minds of board members and CEOs but lacked a catalyst have now come back to the top of the agenda,” Dan Dees, co-head of investment banking at Goldman, told the WSJ.

As investors consider bank stocks, some may turn to broad financial sector-related ETFs to capture the rebound, including the Financial Select Sector SPDR (NYSEArca: XLF), Fidelity MSCI Financials Index ETF (NYSEArca: FNCL), iShares U.S. Financials ETF (NYSEArca: IYF), and Vanguard Financials ETF (NYSEArca: VFH). The broad financial sector ETFs include hefty tilts toward big-name banks like Goldman Sachs, but this broad sector plays also includes other non-pure bank plays in the financial sector as well.

For more information on the financials sector, visit our financial category.