What’s Next In Line To Push Up Bank ETFs?
“Rather than asking what will trigger a correction, we should ask what would push the market higher. Last Friday’s unemployment numbers disappointed; yet stocks inched higher. Economic news dispersed over the past few months has been a mixed bag, yet stocks moved higher. What’s next in line to push up stocks; earnings season? Investors willing to take off their blinders have been noticing the disconnect between the economy’s true state and the stock market’s performance. The economy continues to worsen while stocks continue to rally,” Simon Maierhofer Reports From ETF Guide.
A recent Bloomberg report further emphasizes this disconnect. “Analysts say earnings at financial companies rose 120% in the fourth quarter, accounting for all of the income increase in the Standard & Poor’s 500 Index, and will triple by 2010, climbing four times as fast as the market. Should the estimates prove correct, the shares are trading at a 15% discount to the index, data compiled by Bloomberg shows.”
Maierhofer Continues “Exactly where are bank’s profits are coming from, we are not privy to know. What we do know is that banks were able to boost their capital ratio by changing their accounting standards.” William Black, a former bank regulator, considers this type of financial engineering a way to “exchange trash for cash and turn real losses into faulty gains.”
“It seems like the rift between too good to be true banks (also known as too big to fail) and smaller regional banks (NYSEArca: KRE) is becoming more and more pronounced. Major banks (NYSEArca: KBE) and financial institutions (NYSEArca: XLF) expect strong profit gains while smaller banks continue to close shop. The Wall Street Journal reported that the Federal Deposit Insurance Corp. (FDIC) is having trouble finding buyers for many of the 130+ banks it seized in 2009. Even though the Fed may agree to cover loan losses, banks are in such poor shape that potential purchasers simply cannot be persuaded to bite,” Maierhofer Reports.
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Here are some details on the 3 banking ETFs mentioned:
The investment (KRE) seeks to replicate the total return performance, before expenses, of the KBW Regional Banking index. The fund uses a passive management strategy designed to track the total return performance of the KBW Regional Banking index. The index is a float adjusted modified-market capitalization weighted index of geographically diverse companies representing mortgage banks, loan processors, marketing and service institutions listed on U.S. stock markets. The fund is nondiversified.
| TOP 10 HOLDINGS ( 27.37% OF TOTAL ASSETS) |
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The investment (KBE) seeks to replicate the performance of the KBW Bank index. The fund uses a passive management strategy designed to track the total return performance of the Bank index. It is nondiversified.
| TOP 10 HOLDINGS ( 60.12% OF TOTAL ASSETS) |
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The investment (XLF) includes companies from the following industries: banks, diversified financials, insurance and real estate. The fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index. This fund has adopted a policy that requires it to provide shareholders with at least 60 days notice prior to any significant material change in its policy or its underlying index. It is nondiversified.
| TOP 10 HOLDINGS ( 56.00% OF TOTAL ASSETS) |
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ETF BASIC NEWS, KBE, KRE, XLF
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