It is well-known that the U.S. consumer accounts for about
two-thirds of this country's GDP and it has been cheery consumers
that have helped push stocks higher. The Conference Board
Consumer Confidence Index bounced back in February to 69.6, from
58.4 in January and there are other encouraging factors worth
"We would characterize the US consumer as reformed, prudently
cautious, and view its financial profile as improving," said
S&P Capital IQ in a new research note. "We also believe many
publicly traded lenders fit the same profile; therefore, we have
a positive view on the consumer finance sub-sector."
The consumer finance sub-sector is coming off a stellar run in
2012 when it gained 29.9 percent, according to S&P Capital
IQ, easily outperforming the broader market in the process. The
group has cooled a bit in 2013, but is still higher year-to-date
and S&P Capital IQ does see opportunities with select
"In our view, lenders also learned from major lending mistakes
pre-crisis," said the research firm. "Lenders tightened up credit
standards during the recession through lower loan to value ratios
(LTVs), shorter term lengths, higher FICO score requirements, and
better overall understanding of the consumer."
One of S&P's top consumer finance picks is Dow component
American Express (NYSE:
), which the research firm rates with five stars. Among other
credit card firms, S&P has three-star ratings on Discover
), MasterCard (NYSE:
) and Visa (NYSE:
Among money center banks with significant consumer finance
exposure, S&P has four-star ratings on Dow component J.P.
Morgan Chase (NYSE:
), Citigroup (NYSE:
) and Capital One (NYSE:
). The research firm is slightly less bullish on Bank of America
), US Bancorp (NYSE:
) and Wells Fargo (NYSE:
), rating all those stocks with three stars.
Amid scores of financial services
to choose from, S&P recommends two funds for investors
looking to capitalize on continued bullishness in consumer
finance stocks. One is the iShares Dow Jones U.S. Financial
Sector Index Fund (NYSE:
), which S&P rates Overweight.
IYY is home to nearly 260 stocks and over $820 million in
assets under management. Seven of the aforementioned stocks are
found among the ETF's top-10 holdings. J.P. Morgan is IYF's
largest holding with a weight of 6.53 percent. Wells Fargo,
Citigroup and Bank of America are also found among the ETF's
IYF is up 11.5 percent year-to-date and the fund has annual
expense ratio of 0.46 percent.
S&P is also bullish on the iShares Dow Jones U.S.
Financial Services Index Fund (NYSE:
). IYG is smaller than IYF with $484.5 million in AUM, but the
former offers a more concentrated bet on the consumer finance
theme. Of the aforementioned seven stocks, only Capital One is
not a top-10 holding in IYG. That stock is the ETF's number 12
In terms of being a more concentrated bet on consumer finance
stocks, IYG trumps IYF. IYG's top-10 holdings account for over 61
percent of its weight, but IYF's top-10 lineup equals less than
40 percent of that ETF's weight. Combined, J.P. Morgan, Wells
Fargo and Citigroup represent about 30 percent of IYG's
Year-to-date, IYG is up nearly 12 percent and also charges an
annual expense ratio of 0.46 percent.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Profit with More New & Research
. Gain access to a streaming platform with all the information
you need to invest better today.
Click here to start your 14 Day Trial of Benzinga