Meet This Year's Best Financial ETF
With all the fanfare and hype surrounding the Federal Reserve raising interest rates this year, the first such move in nearly a decade, it is not surprising that financial services stocks and the corresponding exchange-traded funds have been decent performers.
For example, Select Sector Financial Slct Str SPDR Fd (NYSE:XLF), the largest financial services ETF by assets, is higher by 1.7 percent year-to-date. That does not sound like much, but it is better than the less than 1 percent gain being sported by the S&P 500. While the big-name financial services ETFs have been solid though not spectacular, more concentrated industry funds have shined.
The PowerShares KBW Property & Casualty Insurance Portfolio (PowerShares Exchange-Traded Fund Trust II (NYSE:KBWP)) is a perfect example of that trend, as the oft-overlooked insurance fund has surged nearly 15 percent this year, making it 2015's best-performing financial services ETF.
Related Link: Finding Dividend Growth With Financial Services ETFs
A Closer Look At KBWP
With rising interest rates commanding so much attention this year, it is not surprising that an insurance fund would rank among the best financial services ETFs. As is the case with regional bank stocks, insurance names are positively correlated to rising interest rates.
Insurance ETFs deserve some credit for being positively correlated to rising Treasury yields. Simply put, steeper yield curves are advantageous for insurance providers.
The $96.6 million KBWP, which is just over five years old, is home to 24 stocks with weights ranging from 1.57 percent to 8.29 percent. KBWP follows the capitalization-weighted KBW Nasdaq Property & Casualty Index, which is rebalanced and reconstituted quarterly.
Well-known names in KBWP include Progressive Corp (NYSE:PGR), ACE Limited (NYSE:ACE), Allstate Corp (NYSE:ALL) and Dow component Travelers Companies Inc (NYSE:TRV).
Insurance ETFs And The Strong Dollar
Another driver behind insurance ETFs' rising rates is the influence of the dollar's strength. The stronger greenback affects an array of sectors and industry groups, but not insurance companies because U.S.-based insurance providers write the bulk of their policies here in the United States.
Insurance ETFs, such as KBWP, can be used a complements to traditional financial services ETFs, because those funds are not heavy on insurance providers. For example, XLF allocates just over 16 percent of its weight to insurance stocks.
Disclosure: Todd Shriber owns shares of XLF.
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