Fiscal 2011 was a year of series of natural disasters and
economic uncertainty which impacted the U.S economy as a whole and
insurance industry was not any exception. In order to tackle the
economic uncertainty and market turbulence, insurance companies
took massive markdowns as a measure to mitigate some effect. (
Three Construction ETFs For An Economic
Recovery
).
Moreover, Insurance industry experienced a major set back in
terms of their customer base as getting new customers became
difficult in the economy with high unemployment rate where such
products don't catch attraction of the customer due to income
uncertainties. Furthermore, investment income also appears to be
feeble as insurers are getting substantial low returns on their
fixed-income instruments.
Currently the trends in the U.S economy indicate that the U.S
insurer industry will be able to strengthen to some extent.
However, exposure to real estate front will still continue to be a
matter of concern in fiscal 2012. Commercial real estate-backed
loans and securities are the areas where life insurers have maximum
exposure and which will continue to be a matter of concern.
After going through a year of immense pricing pressure, the U.S
Insurance industry has recovered slightly. But, achieving
historical growth rates is unlikely at this point of
time. We expect static growth from persistent soft
market conditions to result in further consolidation in the
industry.
The Insurance ETFs did not perform well at the time of market
uncertainty but when the market recovers, they are poised to
deliver good returns to the investors. The largest 3 funds
tracking the insurance industry in terms of market capitalization
are SPDR KBW Insurance ETF (
KIE
), iShares Dow Jones U.S. Insurance Index Fund (
IAK
) and PowerShares Dynamic Insurance Portfolio (
PIC
).
SPDR KBW Insurance ETF (
KIE
)
Initiated in November 2005, KIE has been designed to track the
performance of
S&P Insurance Select Industry Index
. The fund has total assets of $159.8 million, highest in the
insurance ETF space. With total holdings of 42 stocks, the fund
delivered a negative return of 12.17% over a period of one year,
impacted by the recession in the economy. With approximately 27%
assets in top 10 holdings, the fund's concentration risk is
comparatively low. In the top 10 holding list, The Hartford
Financial Services Group, Inc. (
HIG
) takes the top position followed by Lincoln National Corporation (
LNC
). Property and Casualty takes the top position in terms of
divisional holding with 33.96% of asset. The fund has an expense
ratio of 35 basis points.
iShares Dow Jones US Insurance Index Fund (
IAK
)
Introduced in May 2006, the fund seeks to replicate the
performance of the
Dow Jones US Select Insurance Index.
The fund has a total holding of 64 stocks with concentration risk
of 59.38%, suggesting the fund is not spread out and is highly
concentrated in the top 10 companies. MetLife, Inc. (
MET
) is the fund's topmost choice for asset allocation while Property
& Casualty Insurance is the top preference in terms of sector
allocation. With total assets of $68.9 million, the fund has
delivered a negative return of 7.8%. Investor who has an exposure
in the fund needs to pay an 47 basis points for the expense ratio
for the fund, the second expensive fund in the insurance ETF space.
(
Three ETFs With Incredible Diversification
)
PowerShares Dynamic Insurance Portfolio (
PIC
)
PowerShares Dynamic Insurance Portfolio (
PIC
) is the oldest ETF in the insurance space and most expensive ETF
with 60 basis points of expense ratio. The fund tracks the
performance of the
Insurance Intellidex Index.
PIC has a total holding of 30 stocks with concentration risk of
45.99%. In the funds top 10 holdings, Progressive Corp. (
PGR
) occupies the top position while Prudential Financial, Inc. (
PRU
).and CNA Financial Corporation (
CNA
). takes the second and third position. Over a period of 1 year,
the fund has delivered a negative return of 5.71%(
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)
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