It is as predictable as the day is long. A natural disaster
strikers and traders look to profit by going long stocks with
ties to the recovery effort, such as Home Depot (NYSE:
). Often times, the other side of the trade is shorting property
and casualty insurance providers on the expectation that losses
could mount for these companies following an earthquake,
hurricane, tornado, etc.
That could easily be the case following Hurricane Sandy with
some analysts pegging insured losses anywhere from
$7 billion to $20 billion
. The high end of that range could prove disastrous for insurance
providers and the corresponding
. For example, $20 billion is more than double the average market
value of the PowerShares KBW Property & Casualty Insurance
) 24 holdings.
The PowerShares KBW Property & Casualty Insurance
Portfolio is the one ETF that comes right and says it is heavily
allocated to property and casualty providers. Dow component
) is the fund's largest holding with a weight of 10 percent.
Other top holdings include Allstate (NYSE:
) and Chubb (NYSE:
). KBWP is not heavily traded. In fact, the ETF has not traded
yet on Monday November 5, but the fund is off 4.3 percent in the
previous five trading days. That performance could be an
indication traders were pricing in tough times for the ETF's
holdings even before Sandy made landfall.
KBWP is far from the only vulnerable insurance ETF in the wake
of Sandy. The $114.5 million SPDR S&P Insurance ETF (NYSE:
) allocates nearly 39 percent of its weight to property and
casualty providers and another 16.3 percent to multi-line
insurance providers. Translation: KIE is far from insulated from
any post-Sandy negativity that could hamper insurance providers.
The ETF has tumbled 2.1 percent in the past five days.
Another ETF that traders have been sinking their teeth into is
the iShares Dow Jones U.S. Insurance Index Fund (NYSE:
). The $71.7 million fund allocates
more than 54 percent of its weight to P&C
. Travelers, Prudential (NYSE:
), Ace (NYSE:
), Chubb and Allstate combine for over 28 percent of the ETF's
weight. Not surprisingly, the fund has slid 2.4 percent in the
past five trading sessions.
As a result of the Sandy-induced fundamental problems these
ETFs now face, the funds have become technically vulnerable. Both
IAK and KIE are within pennies of falling below their 50-day
Those looking to buy one of these ETFs on the dips should
tread carefully and check on the funds' holdings prior to buying.
It is often forgotten with equity-based ETFs that it is the
underlying holdings that determines the fund's price action. To
that end, investors should note that in the past five trading
days shares of Travelers have tumbled 4.1 percent. Allstate has
dipped 5.1 percent while Chubb has plunged 6.3 percent.
For more on ETFs, click
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.