Published October 02, 2012
Insurance, be it health, home, auto or life, is not a product most folks are apt to forget about. It is easy to remember the need for health insurance in the face of soaring health care costs in the U.S. Additionally, many Americans are reminded every month that they have auto and/or home insurance when the bill arrives in the mail.
To that end, it is somewhat odd that ETFs tracking insurance providers lead anonymous existences relative to those funds following other firms in the financial services sector. Despite all the emphasis on ETFs that are heavy on bank stocks, investors might want to have a look at an insurance ETF or two. A recent research note courtesy of S&P Capital IQ says as much.
In terms of the property and casualty insurers, those firms have rebounded from major catastrophic losses and have reported price increases on premiums, but there are opportunities throughout the insurance universe.
Here are some of the insurance ETFs brokers are not talking about:
SPDR S&P Insurance ETF (KIE)
The SPDR S&P Insurance ETF is one of the larger members of the insurance ETF group with almost $108 million in assets under management. KIE differs from some of its rivals in that none of its 46 holdings receive an allocation greater than 2.57 percent. KIE's top-10 holdings range in weight from 2.36 percent to 2.57 percent, so it is fair to say this fund is not excessively weight to just one or two big insurance names.
In fact, KIE does not focus on the most familiar insurance providers such as American International Group (AIG) or Prudential (PRU). That is to say the fund spreads its weight around over large-, mid- and small-cap names.
KIE is up 14 percent year-to-date, but the fund, like its rivals has significantly lagged bank stock ETFs such as the Financial Services Select Sector SPDR (XLF).
iShares Dow Jones U.S. Insurance Index Fund (IAK)
The iShares Dow Jones U.S. Insurance Index Fund is one of the ETFs rated Overweight by S&P Capital IQ in the aforementioned research note and this fund does business a little bit differently than does KIE. For example, IAK's top-two holdings, AIG and MetLife (MET), combine for over 17 percent of IAK's weight. It takes seven KIE constituents to exceed 17 percent of that fund's weight.
IAK is also 12 basis points costlier with an expense ratio of 0.47 percent. The fund is about 55 percent allocated to property/casualty firms with another 32.5 percent going to life insurance providers. The differences between IAK and KIE are worth noting if for no other reason than that there is a performance gap between the two. Year-to-date, IAK trails its SPDR rival by about 150 basis points.
iShares Dow Jones U.S. Healthcare Providers Index Fund (IHF)
Obviously, the iShares Dow Jones U.S. Healthcare Providers Index Fund does not provide for an apples-to-apples comparison to the other ETFs mentioned here. It is also far larger with $226.1 million in AUM.
Differences aside, IHF cannot be forgotten about. Not with a presidential election with potentially deep consequences for the health care-related companies barely more than a month away. Pharmaceuticals stocks and ETFs have been highlighted as election plays, but a fund like IHF must be included.
If there is debate regarding the impact of Obamacare on health insurance providers, IHF's performance might put that debate to bed. The fund is up 17.5 percent year-to-date and 34.2 percent over the past year. New Dow component UnitedHealth (UNH) and Express Scripts (ESRX) combine for over 27 percent of IHF's weight.
PowerShares Dynamic Insurance Portfolio (PIC)
With average daily volume of less than 1,340 shares, the PowerShares Dynamic Insurance Portfolio is not particularly voluminous. However, a 13.5 percent year-to-date gain shows PIC is yet another example of an ETF not needing large volume to deliver large returns. The $7.6 million fund focuses primarily on life and property/casualty providers. Top holdings include Allstate (ALL), Aflac (AFL) and MetLife.
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