Trouble Ahead For Bank ETFs As A Tidal Wave Of New Foreclosures Loom Over The Housing Market

forclosure “The broader financial sector, including  brokerages and insurers, makes up roughly 16% of the market value of the Standard & Poor’s 500 index. That’s the second-largest sector after information technology. Financial stocks’ weighting, and the sector’s violent rebound last year, did a lot to get the broader market out of the dumps. An ETF that tracks the financial sector, the Financial Select Sector SPDR (XLF), jumped 143% from its March 9 close. And if banks aren’t healthy enough to lend more, or they’re seeing weak loan demand, that’s bad news for the economy,”Alistair Barr Reports From MarketWatch.

Alistair goes on to say, “A bigger problem may be foreclosures. There could be foreclosure filings on 3 million to 3.5 million homes in 2010, according to RealtyTrac. There were a record 2.8 million homes with at least one foreclosure filing in 2009, the firm says. Foreclosures would probably have been higher last year if not for government and industry efforts to cushion the impact, including loan modifications and state legislation extending the process.”

“A massive supply of delinquent loans continues to loom over the housing market,” RealtyTrac Chief Executive James Saccacio said in a recent statement.

Bank reserves may not be bolstered enough yet for such a high level of foreclosures. The industry reported a fourth-quarter profit of just under $1 billion, a big improvement from the $37.8 billion loss it suffered during the final three months of 2008, according to Richard Bove, a bank analyst at Rochdale Securities. “The recorded profit is due more to an accounting gimmick than an improvement in operating earnings,” Bove wrote in a recent note to investors. “The industry decided to avoid building its reserves in the quarter to the same extent as non-performing assets rose.” “If the reserves had been built to the level that was warranted by the increase in bad loans, the sector’s profit would have been a multi-billion loss,” the analyst added.

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Here are some details on the Financial Select Sector SPDR ETF (XLF):

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.

Financial Select Sector SPDR ETF (XLF) Components and weightings as of 1/8/10

  Name Symbol Index Weight
1 JPMorgan Chase & Co. (JPM) 11.65%
2 Bank of America Corp. (BAC) 11.04%
3 Wells Fargo & Co. (WFC) 9.76%
4 Goldman Sachs Group Inc. (GS) 5.93%
5 Citigroup Inc. (C) 4.63%
6 American Express Co. (AXP) 3.30%
7 U.S. Bancorp (USB) 3.06%
9 Bank of New York Mellon Corp. (BK) 2.35%
10 MetLife Inc. (MET) 2.07%
11 Travelers Cos. Inc. (TRV) 1.76%
12 PNC Financial Services Group Inc. (PNC) 1.74%
13 Prudential Financial Inc. (PRU) 1.65%
14 CME Group Inc. Cl A (CME) 1.54%
15 AFLAC Inc. (AFL) 1.53%
16 State Street Corp. (STT) 1.49%
17 Simon Property Group Inc. (SPG) 1.45%
18 Capital One Financial Corp. (COF) 1.26%
19 BB&T Corp. (BBT) 1.24%
20 Charles Schwab Corp. (SCHW) 1.21%
21 Allstate Corp. (ALL) 1.11%
22 Chubb Corp. (CB) 1.10%
23 Franklin Resources Inc. (BEN) 1.07%
24 T. Rowe Price Group Inc. (TROW) 0.92%
25 Loews Corp. (L) 0.91%
26 Northern Trust Corp. (NTRS) 0.84%
27 Progressive Corp. (PGR) 0.79%
28 Marsh & McLennan Cos. (MMC) 0.77%
29 SunTrust Banks Inc. (STI) 0.76%
32 Ameriprise Financial Inc. (AMP) 0.71%
33 AON Corp. (AON) 0.69%
34 Hartford Financial Services Group Inc. (HIG) 0.66%
35 INVESCO Ltd. (IVZ) 0.65%
36 Boston Properties Inc. (BXP) 0.62%
38 HCP Inc. (HCP) 0.59%
40 Principal Financial Group Inc. (PFG) 0.54%
41 Lincoln National Corp. (LNC) 0.54%
42 Discover Financial Services (DFS) 0.54%
43 IntercontinentalExchange Inc. (ICE) 0.53%
44 Host Hotels & Resorts Inc. (HST) 0.52%
46 UNUM GROUP (UNM) 0.45%
47 NYSE Euronext (NYX) 0.45%
48 Hudson City Bancorp Inc. (HCBK) 0.45%
49 Ventas Inc. (VTR) 0.45%
50 Avalonbay Communities Inc. (AVB) 0.43%
51 PROLOGIS (PLD) 0.43%
52 Genworth Financial Inc. Cl A (GNW) 0.42%
53 Plum Creek Timber Co. Inc. REIT (PCL) 0.42%
54 XL Capital Ltd. Cl A (XL) 0.41%
55 M&T Bank Corp. (MTB) 0.40%
56 People’s United Financial Inc. (PBCT) 0.39%
57 KEYCORP (KEY) 0.38%
58 Kimco Realty Corp. (KIM) 0.37%
59 SLM CORP. (SLM) 0.37%
60 Health Care REIT Inc. (HCN) 0.36%
61 Moody’s Corp. (MCO) 0.35%
62 Legg Mason Inc. (LM) 0.33%
63 Comerica Inc. (CMA) 0.33%
64 Leucadia National Corp. (LUK) 0.32%
65 Cincinnati Financial Corp. (CINF) 0.29%
66 American International Group Inc. (AIG) 0.26%
67 CB Richard Ellis Group Inc. Cl A (CBG) 0.25%
68 Torchmark Corp. (TMK) 0.25%
69 Assurant Inc. (AIZ) 0.24%
70 Marshall & Ilsley Corp. (MI) 0.24%
71 First Horizon National Corp. (FHN) 0.21%
72 Huntington Bancshares Inc. (HBAN) 0.20%
73 NASDAQ OMX Group Inc. (NDAQ) 0.20%
74 E*TRADE Financial Corp. (ETFC) 0.18%
75 Janus Capital Group Inc. (JNS) 0.17%
76 Federated Investors Inc. (FII) 0.16%
78 Apartment Investment & Management Co. (AIV) 0.13%

Chart for Financial Select Sector SPDR (XLF)


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