Several things about the financial services sector are widely
known. First, the group has been the source of much controversy
and angst for investors over the past several years. Second, it
is the second-largest sector weight in the S&P 500 behind
Third, financial services names have, broadly speaking, been
excellent performers this year. Fourth, those bull runs were seen
as endangered if President Obama won reelection. Finally, the
President did win and financials have subsequently slumped. Over
the past five trading days, the Financial Services Select Sector
) has tumbled 3.6 percent.
There are multiple reasons for the post-election fallout among
bank stocks, including that investors are simply taking profits
in anticipation of higher capital gains taxes in 2013.
"Anytime a sector has such a strong run compared to other
sectors, it certainly becomes susceptible to investors taking
profits and redeploying their funds elsewhere-especially given
the president's proposal to raise capital gains taxes on
higher-income investors," WisdomTree Research Director Jeremy
Schwartz said in a note.
Predictably, investors and bankers themselves are concerned
about the regulatory outlook facing the sector. After all, the
Dodd-Frank legislation was passed under President Obama's watch
and with his reelection, repeal of that law seems unlikely.
"Investors are concerned about the financial sector's
potential moving forward due to the election results. With the
re-election of President Obama, the increased regulations of the
Dodd-Frank Act are now unlikely to be repealed,"
according to Schwartz
. "Some of the run-up in financials may have been a belief that
Governor Romney had the potential to come in and scale back some
of the harsher regulations contained in this law."
With a potential return to turbulent times looming for bank
stocks, investors should consider some
with reduced (or no) exposure to the financial services sector.
Enter the WisdomTree Dividend ex-Financials Fund (NYSE:
), which has almost $1.2 billion in assets under management.
DTN debuted in June 2006, making it one of the first ETFs to
find success with the "ex" sector strategy. Excluding bank stocks
when times are bad for that group makes an obvious difference
when it comes to returns. For example, DTN is down 4.7 percent
over the past five years while the iShares Dow Jones Select
Dividend Index Fund (NYSE:
), which today features a nearly 10 percent allocation to
financials, is off 16.2 percent over the same five-year
Over the past three years, DTN has crushed DVY and the SPDR
S&P Dividend ETF (NYSE:
). With less volatility than its rivals, DTN has returned 54.2
percent, including dividends paid, since November 2009. DVY is up
46.3 percent over the same time while SDY has gained 36.7
Adding to DTN's allure is the fact that
it pays a monthly dividend
, providing investors with a steadier stream of income.
"We believe DTN offers a means to generate continued exposure
to dividend-paying U.S. equities while avoiding the financial
sector-all the more important as a potential source of income
when interest rates remain at historic lows," wrote Schwartz.
DTN charges 0.38 percent per year. Consumer staples and
utilities names combine for over a quarter of the fund's
For more on ETFs, click
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