IYF (iShares - BlackRock) tracks an index of 284 US financial companies, including banks, insurance companies and specialised banking companies.
The top 10 holdings represent just over one third of the index and are among the largest global financial companies, for example, Berkshire Hathaway's company, as well as the prestigious JP Morgan, Goldman Sachs, and Citibank, but also companies like Visa and Mastercard specialising in bank cards.
This is a very deep, diversified index from a business perspective, but with a US origin even if some of these companies have global operations. This is mainly a dollar exposure. This ETF is interesting by the quality of its constituent companies, its depth and diversification in the financial universe that goes well beyond a banking Index. The expenses of 0.44% are above the average of ETFs offered on this zone, but it's often the case for a sector ETF. Asset Under Management are m$1,694.
Since its inception in May 2000, IYF has achieved a cumulative performance of 24%, which is not negligible (dividends are distributed), taking into account the fact that this sector has gone through the major financial crisis of 2008-2009, the largest since the great crisis of 1929.
There is some inherent volatility in financial companies that still in process since the end of the sub-prime crisis. Financials are highly sensitive to the macroeconomic environment, with profits varying depending on the yield curve, the economic situation that drives the rise of risks and of course the behaviour of the markets themselves. By their importance in the economic system, financial companies are subject to stricter or less stringent regulations depending on the periods which also determine the return on equity. Financial stocks are volatile and operates from a global perspective, meaning that they are potentially sensitive to a particular problem in a particular region (bankruptcy of a country or a hedge-fund, monetary or political crisis).
US financials are now benefiting from the rise in long rates (positive for margins), a promise of deregulation that would be very favourable to banking activities and the rise in markets that positively impacted trading activities. For the third consecutive year the ‘stress test’ imposed by the Federal Reserve to the 34 largest US banks led to the conclusion that the latter are well capitalised and have ample liquidity. Large US banks are now allowed to increase their dividends or share buybacks, while the administration plans to relax the rules in place from 2010 to better manage banks and avoid excessive risk-taking. A flow of very positive news (at least in the short term) for the sector.
