US Financials (IYF) : A contrarian sector

iShares ETF US Financials - IYF - 30/06/2017

Short term strategy : Neutral (50%) / Trend +
Long term strategy : Positive (95%) / Trend +

Characteristics of the ETF

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.

Monthly data

The analysis of monthly charts shows a strong upward trend. June's candle (almost complete) shows an increase in the trend, which is rather contrarian to the US market, which has been negatively impacted in recent weeks by technology and energy stocks. The sector corrected between March and May, which helped to avoid overheating.

A new upward trend is possible, towards the 2007 summits in the $122 area.


Weekly data

The analysis of weekly charts supports the long-term analysis. The spring correction is over, and a new bull market is in process. The MACD positive crossing is upcoming, which would be a confirmation signal. The next resistance to be exceeded is the 109/$110 level, which corresponds to the summit of the first wave of increase that ended in February. Moving averages are upward, making the technical situation very encouraging.


ETF objective

Exposure to a large index (284 companies) of U.S. banks, insurers, and credit card companies.


Inception date 22/05/2000
Expenses 0,44%
Issuer iShares
Benchmark DJ US Financials index
ticker IYF
CUSIP 464287788
Currency $
Exchange NYSE
Asset Under Management 1 694 M$
Dividend distributed
Currency risk No
Number of Holdings 284
Risk 4/5







Country Breakdown

USA 100%

Sector Breakdown

Banks 32%
Diversified Financials 26%
Real Estate 20%
Insurance 15%
Software & Services 6%

Top 10 Holdings

Berkshire Hathaway 7%
JP Morgan Chase & Co 7%
Wells Fargo 5%
Bank of America 5%
Citigroup 4%
Visa Inc 4%
Mastercard Inc 2%
Goldman Sachs 2%
US Bancorp 2%
Chubb 1%