Happy Monday as we kick off the start to a holiday-shortened week. U.S. Markets are closed in observance of Martin Luther King Day which allows us a little more time to prepare for the week ahead. The news cycle has not slowed as we saw economic data from China that showed it’s economy roared back to pre-pandemic levels. GDP climbed 6.5% compared to the prior year which means China will report 2020 GDP growth of 2.3%, making it the only major economy to expand in this troubled year. The news does provide a ray of hope that the global economic recovery continues on the right path.
As for the United States, we are preparing for Q4 report card from companies as earnings season gets underway. We will get reports from major tech and transportation firms this week but the first part of earnings tends to be dominated by the financial sector, which is where we will shine our ETF sector spotlight this week.
- Trivia Question- Can you name the Top 5 financial service companies by market cap?
On Friday, major money centers J.P. Morgan, Citigroup (C) and Wells Fargo (WFC) posted Q4 results. They were joined by super regional PNC Bank (PNC). Overall, the results were strong with surprise reserve releases by JPM, WFC and PNC suggesting an improved outlook on economic conditions. C was unable to participate due to internal concerns around a Revlon loan made in the back half of 2020 that caught regulators attention. Top lines struggled as loan demand was weak, but there were signs of improvement heading into 2021. Net Interest Income and Net Interest Margin also remained under pressure, however, the recent steepening of the yield curve has led to anticipation of a bottoming in this trend. Investment Banking units continue to perform well in this environment and were key drivers for JPM and C results.
TrackStarIQ Data
| RANK | TOP ETFS – BY ALL FAs (Total Traffic) Last Week | Ticker | TOP ETFS BY FAs w/ AUM>$1B (Total Traffic) Last Week | Ticker | ETF CATEGORIES SPOTLIGHT- ASIA PACIFIC EQUITIES (Total Traffic) Last Month | ETF CATEGORIES SPOTLIGHT- FINANCIAL EQUITIES (Total Traffic) Last Week |
|---|---|---|---|---|---|---|
| 1 | SPDR S&P 500 ETF | SPY | SPDR S&P 500 ETF | SPY | EEM | XLF |
| 2 | Invesco QQQ | QQQ | VanEck Vectors Gold Miners ETF | GDX | IEMG | BIZD |
| 3 | ARK Innovation ETF | ARKK | iShares U.S. Consumer Goods ETF | IYK | DGS | KRE |
| 4 | Direxion Daily S&P 500 Bull 3X Shares | SPXL | SPDR Gold Trust | GLD | AIA | VFH |
| 5 | ARK Web x.0 ETF | ARKW | Invesco QQQ | QQQ | EWY | KBE |
| 6 | ARK Genomic Revolution ETF | ARKG | iShares Russell 2000 ETF | IWM | FNI | IYF |
| 7 | VanEck Vectors Gold Miners ETF | GDX | Global X Silver Miners ETF | SIL | GLIN | IAT |
| 8 | SPDR Gold Trust | GLD | VanEck Vectors AMT-Free Intermediate Municipal Index ETF | ITM | AAXJ | KCE |
| 9 | ProShares Ultra VIX Short-Term Futures | UVXY | Invesco DB US Dollar Index Bullish Fund | UUP | VPL | IAI |
| 10 | Energy Select Sector SPDR Fund | XLE | Direxion Daily Semiconductor Bull 3x Shares | SOXL | INDA | KBWB |
| 11 | iShares Silver Trust | SLV | ProShares DJ Brookfield Global Infrastructure ETF | TOLZ | XSOE | |
| 12 | VanEck Vectors Semiconductor ETF | SMH | Alerian MLP ETF | AMLP | FLAX | |
| 13 | Direxion Daily S&P Oil & Gas Exploration & Production Bear 2x Shares | DRIP | Direxion Daily Junior Gold Miners Index Bull 2x Shares | JNUG | EEMA | |
| 14 | Global X Internet of Things Thematic ETF | SNSR | Renaissance IPO ETF | IPO | ECNS | |
| 15 | Invesco WilderHill Clean Energy ETF | PBW | First Trust NASDAQ CEA Cybersecurity ETF | CIBR | EWH | |
| 16 | iShares Russell 2000 ETF | IWM | Financial Select Sector SPDR Fund | XLF | EWT | |
| 17 | SPDR Dow Jones Industrial Average ETF | DIA | ETFMG Prime Cyber Security ETF | HACK | SMIN | |
| 18 | Invesco Solar ETF | TAN | First Trust Nasdaq Pharmaceuticals ETF | FTXH | INDY | |
| 19 | iShares Global Clean Energy ETF | ICLN | Invesco Water Resources ETF | PHO | EIDO | |
| 20 | ProShares UltraPro Short QQQ | SQQQ | iShares Silver Trust | SLV | EPI |
The reaction by the stocks was a little more concerning for markets as we did see a sell the news reaction to headlines. This is not terribly surprising given the 40% rallies over the past couple of months. It will garner attention this week and we wanted to highlight a few lesser known financial ETFs that were coming up in peers searches.
- VanEck BDC Income (BIZD)- This seeks to replicate the price and the yield performance of the MVIS U.S. Business Development Companies Index. These are companies whose principal business is to invest in, lend capital to or provide services to privately held companies. BIZD sports one of the highest Expense Ratios in the ETF universe at a whopping 10.24%. However, it also pays a hefty dividend yield of 10.06% to help offset some costs. The fund’s one year return is -5.65% which will raise a few eyebrows. It would appear the SPAC-mania that has taken hold of the market has peers researching private equity ETFs as a way to participate without paying the high valuations. BIZD is attempting to press back above $15 which represents significant resistance on the monthly chart.
- Vanguard Financials (VFH)- This ETF is composed of stocks from the U.S. financial sector across all market caps. It is well-diversified as it applies limits to single-issuers and the sum of the weight of all issuers with more than 5% does not exceed 50% of total assets. This allows the ETF to track the entire sector rather than a top heavy exposure that could lean on one name. It has an Expense Ratio of 0.10% while holding a distribution yield of 2.09%. Banking Services make up 42% of the portfolio followed by Insurance (28%), and Investment Banking (22%). JPM, BRK.B, BAC, C, WFC, and BLK are its heaviest weighted constituents but the Top 10 only makes up 41% of the fund. It tracks in line with the XLF despite having 417 holdings compared to 67 in the XLF. It also has only $7.82 bln Assets Under Management compared to $30 bln in the XLF. VFH is pressing up near all-time highs following a 25% rally over the past three months.
- iShares U.S. Financials (IYF)- The IYF seeks to offer broad exposure to the U.S. Financial sector. The index covers the top 95% of the market. It has 233 holdings and limits cap-weighted exposure to 10% for any one issuer. It holds a higher expense ratio than some peers at 0.44% while paying out a distribution yield of 1.66%. Banking Services represent 27% of the holdings followed by Insurance (22%), Residential (19%), and Investment Banking (15%). Its largest constituents are BRK.B, JPM, V, BAC, and MA. It has underperformed the XLF on a year to date basis (+3.25% vs +6.24%) and holds $1.63 bln of Assets Under Management compared to $30 bln at the XLF. This is another ETF pressing towards all-time highs above $70 but is seeing some slow down following a strong finish to 2020.
- iShares U.S. Regional Banks (IAT)- The IAT targets small- and mid-cap banks concentrated in the small-cap area. One third of the fund is in TFC, USB and PNC. It has an Expense Ratio of 0.44% and a distribution yield of 2.60%. It has $333 mln in Assets Under Management but it is an easy fund to trade, offering strong block liquidity which is welcomed by large investors. It has enjoyed a strong start to 2021 with a year-to-date return of 10.67%, driven in anticipation of a fiscal stimulus package that will help improve the economic conditions domestically. Similar to IYF and VFH, this is coming in for a key test of it’s all-time highs in the $52-54 area.
Trivia Answer- Berkshire Hathaway (BRL.B) $567 bln market cap; Visa (V) $444 bln market cap; J.P. Morgan (JPM) $422 bln; Mastercard (MA) $322 bln; Bank of America (BAC) $285 bln; PayPal (PYPL) $280 bln. If curious, Bitcoins total value is now north of $500 bln.