Despite recently increasing calls for a broader market
pullback, the financial services sector has held up well. In
February, the Financial Services Select Sector SPDR (NYSE:
) lost just 0.11 percent and the ETF is still up nearly eight
Home to 84 stocks, XLF is not concentrated solely on money
center banks. Rather, the ETF offers exposure to insurance
providers such as American International Group (NYSE:
) and real estate investment trusts such as Simon Property Group
) in addition to traditional retail and investment banks.
Investors looking to take advantage of possible ongoing
bullishness with major bank stocks might want to consider a more
concentrated ETF bet.
"S&P Capital IQ's fundamental outlook for the U.S.
Diversified Banks sub-industry for the next 12 months is
positive, despite the upcoming economic challenges and regulatory
hurdles we see," the research firm said in a new research note.
Fourth-quarter results for the three banks which comprise this
sub-industry reflected higher-than-expected mortgage banking
revenues and significant loan credit quality improvements. In our
view, results over the next 12 months for these banks will depend
on the resolution of the debt ceiling, growth of the U.S.
economy, housing prices and regulatory costs."
In the note, S&P IQ revealed four-star ratings on three
banks - Citigroup (NYSE:
), Dow component J.P. Morgan Chase (NYSE:
) and Toronto Dominion (NYSE:
Those three banks combine for nearly 18 percent of the Market
Vectors Bank and Brokerage ETF's (NYSE:
) weight. By comparison, J.P. Morgan Chase and Citigroup combine
for 14.4 percent of XLF's weight while Toronto Dominion is not
featured in that ETF.
On a qualitative basis, in addition to Citi, J.P. Morgan and
Toronto Dominion, S&P Capital IQ is also bullish on HSBC
), giving the European banking giant a four-star rating as well.
HSBC is RKH's largest holding at a weight of almost nine
Using a quantitative screen to assess fair value, S&P
notes that six of RKH's top-10 holdings are considered
undervalued with Wells Fargo (NYSE:
) not being ranked. In addition to the aforementioned stocks,
RKH's other top-10 holdings are Bank of America (NYSE:
), Japan's Mitsubishi UFJ, Goldman Sachs (NYSE:
), Royal Bank of Canada (NYSE:
) and Spain's Banco Santander (NYSE:
"From a risk perspective, RKH earns a favorable ranking input
for the Standard & Poor's Credit Ratings of its holdings,"
said the research firm. JPMorgan, Royal Bank Canada,
Toronto-Dominion Bank and Wells Fargo are just some of the
holdings that have strong investment-grade ratings of A or
RKH is small compared to XLF and other well-known bank
. The fund is home to just 26 stocks and $22.9 million in assets
under management. Volume of just over 35,000 shares per day may
turn some investors off, though it should be noted RKH's bid/ask
spread on a slow volume day such as Friday is just four cents
The fund spent the bulk of the fourth quarter with closing
prices within a half percent or less discount or premium to its
net asset value,
according to Market Vectors data
. Additionally, RKH has outperformed its underlying index by
a decent margin in the past year
, giving investors the benefit of favorable tracking error in the
"Overall, RKH earns an Overweight ranking according to S&P
Capital IQ. We think the ETF offers exposure to a number of
attractively valued financial services companies, with strong
balance sheets, around the globe," the firm said.
RKH has trailed XLF year-to-date, but the former's 30-day SEC
yield is about 90 basis points higher than the latter's.
For more on ETFs, click
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