Are Foreign Financial ETFs Back on Track? - ETF News And Commentary
Financials have been an in focus sector throughout 2012 thanks to scandals, European debt woes, and broad market uncertainty. Stocks in this corner of the market started off the year on a strong note, but then promptly slumped back to beginning of year levels in the end of Q2.
However, some names in the sector have begun to come back in recent weeks, largely due to oversold conditions in many corners of the market. Additionally, some worries over the European crisis are beginning to subside while reasonably solid American economic data isn't hurting matters either.
In fact, quarter-to-date, the average return for financial ETFs-with any focus or country target-are up 2.3%. This has largely been led by some of the worst performers (year-to-date) in the space-such as foreign financial ETFs-while U.S.-centric products with a large cap focus have lagged (see The Complete Guide to Total Market ETFs ).
Given this reversal, some investors may want to consider taking a look at some of the foreign financial ETFs which have begun to outpace their peers in recent weeks but are still trading at levels far below their multi-year highs. While these are potentially high risk options, their momentum in the financial space is unmatched, suggesting that they could be decent short-term plays if the global economic outlook remains stable.
For these investors looking to go off the beaten path in the financial space and play some strong momentum ETFs, we have highlighted three funds below which have all gained more than 8% since the start of July, thoroughly crushing not only broad financials, but broad markets as well to start the new quarter:
SPDR S&P International Financial Sector ETF ( IPF )
This fund offers global exposure to the financials space while also removing American securities from the basket. This results in a fund of about 125 companies with heavy exposure going to the Anglosphere with countries like the UK, Australia, and Canada.
In terms of sectors, banks make up more than 50% of assets, while insurance and real estate combine for another 30% of the product. Large caps and value stocks also dominate the profile of the fund, suggesting a tilt towards safer securities (read Three Overlooked High Yield ETFs ).
Unfortunately, volume and AUM are pretty low for this product, potentially producing wide bid ask spreads. Costs come in moderate at 50 basis points a year which puts the fund in the middle of the pack from a fee perspective.
Since the beginning of Q3, IPF has been a solid performer, adding over 8.5% while producing a 3.6% annual dividend yield. However, this fund has been a much better performer over long time periods with a nearly 19.4% jump in year-to-date gains.
iShares MSCI Far East Financials Sector Index Fund ( FEFN )
For a focus on the Asia-Pacific financial market investors can look to FEFN. This fund could be an ideal choice for investors looking for a way to avoid European woes and focus in on one of the stronger economic regions of the world.
In total, the ETF holds 74 stocks in its basket, with heavy weightings going towards Japanese firms. These stocks account for over half the portfolio while Hong Kong and Singapore account for another 35% of assets (read Developed Asia Pacific ETF Investing 101 ).
Sector exposure is focused on banks once again, but real estate and insurance account for a robust 36% as well. Large caps make up nearly 90% of assets while value also makes up the majority, but just over 50% in this product.
Since the start of the quarter, the fund has added roughly 11.3%, although it is still down about 0.7% from a one year look. It is worth noting that the fund is somewhat close to its 52 week high, but it has traded in a pretty narrow band-thanks in part to low volume-- while yield does come in at an impressive 2.85%.
Global X Brazil Financials ETF ( BRAF )
For a targeted play on the Brazilian financial market, BRAF is the only option out there. The fund tracks the Solactive Brazil Financials Index which looks to give broad exposure to the financial sector in the major South American nation.
With this focus, the fund has just over 25 stocks in its portfolio and double digit weightings to two firms, and another 9.4% in another. This suggests that the product is relatively top heavy, although it should be noted that roughly one-third of the assets go to mid caps or smaller.
Like the other funds on this list, volume and AUM is quite low for this fund. This could produce high bid ask spreads and when combined with the 77 basis point expense ratio, could push the total cost for this fund relatively high (read The Comprehensive Guide to Brazil ETFs ).
BRAF has been the top performer in the financial world to start the third quarter, adding just under 14% in the time period. This is even more impressive considering both its year-to-date and one year performances are still both in the red, suggesting that the fund still has a long way to go in order to get back up to its 52 week highs.
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GLBL-X BRZL FIN (BRAF): ETF Research Reports
ISHARS-MS FE FN (FEFN): ETF Research Reports
SPDR-SP I FINL (IPF): ETF Research Reports
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