Rising interest rates a good thing for some financial funds.
The financial sector has shifted into focus this year. As the Federal Reserve continues tapering its large-scale asset purchases, investors are contemplating the effects of rising interest rates. Rising rates may benefit the profitability of lenders within the financial sector as they increase lending and earn higher rates of return. The prospect of rising rates coupled with the recent round of stress tests and newly approved capital plans mean that the financials sector is definitely one to watch. We recommend keeping an eye on the following ETFs and the financial sub-sectors they track:
- Broad-based Financials: The iShares U.S. Financials ETF (IYF | A-96) holds companies of all sorts but has its largest allocation to banks and insurance companies.
- Broker-Dealers: The iShares U.S. Broker Dealers ETF (IAI | B-62) holds most of the big brokerage firms, among others.
- Banks: The PowerShares KBW Bank ETF (KBWB | A-84) holds a portfolio of U.S. banks.
- Financial Services: The iShares U.S. Financial Services ETF (IYG | A-84) holds a portfolio of financial services firms, many of which happen to be large banks.
- Insurance: The iShares U.S. Insurance ETF (IAK | A-77) holds a portfolio of the largest U.S. insurance providers including AIG, MetLife and Prudential.