iShares US Financial ETF (NYSEARCA: IYF) is a financial ETF with a focus on banking rather than insurance. Given the current macroeconomic dynamics, insurance is the more attractive of the two, and we’d like to see more of that in the future. portfolio. PE implies growth that is unlikely even with long-term GDP forecasts, and especially given the pressures faced by the global economy over the next few years. This is not a very interesting game and iShares Insurance ETF (IAK) would be the preferred choice, also because they both have the same expense ratio of 0.39%.
The following are some of IYF’s top holdings:
Berkshire Hathaway (BRK.B) takes the top spot with nearly 13% allocation. This substantially and insurance business, but also of course applies equity portfolio managed by Warren Buffett & Co. After that there are lots of full-service US banks, with sizable IB revenues, a little bit of retail banking, and maybe a little bit of asset management too.
On the first page of ownership the top 40% are pro-cyclical companies and 13% are insurance companies, which in the current macroeconomic setting is actually the opposite of cyclical, because cycles end with higher rates and higher rates are good for insurance. portfolio.
Investment banking is not an irrelevant part of the business of JPMorgan (JPM), BAML (BAC), Morgan Stanley (MS) and these other full-service listed banks. That has taken a hit in ECM, DCM and M&A as interest rates have halted the financing environment. Retail banking also doesn’t benefit much from higher rates. First, the issue of economic pressures that impede credit growth. But then there’s the problem even on the net interest margin, because deposit rates have to go up – people aren’t stupid.
After the banks, there are companies that are very pro-cyclical. BlackRock (BLK) is of course dependent on cash flow to equities, and S&P (SPGI) is dependent on DCM volume, as it rates that credit.
The only company here to succeed in the event of an economic dispute is Charles Schwab (SCHW) because they win on volatility, and certainly some of BRK. BRK’s equity portfolio has nowhere to hide if rates rise, but its reserve portfolio in insurance is usually lots of short-term bonds that will roll over well at these higher rates. Additionally, insurance prices have held up, and there has been plenty of growth in premiums over the last few years to reap the benefits of newly signed policies at great rates for years to come.
The main thing is
There are also valuation issues in the market, of course in this segment. Multiples are closer to 13x as the 1Y rate is above 5% and nothing is below 4% on the US yield curve anymore. Revenue growth is implied to justify the results that come with a PE 12-14x substantially above the GDP growth the US would have used before deglobalization.
Chances of a knockout of some sort from the banks are less likely, especially during a more durable period as the Fed continues to worry about interest rates not falling fast enough, indicating that they will do whatever they need to to avoid a wage-price spiral.
Overall, although there has been at least some positives to IYF and a fairly low expense ratio at 0.39%, the place is in insurance and IAK.