An Inexpensive Way to Diversify Into Financial Stocks
Feb 28th 2013 12:39AM
Updated Feb 28th 2013 12:44AM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some financial stocks to your portfolio, the RevenueShares Financials Sector ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The RevenueShares ETF's expense ratio -- its annual fee -- is a relatively low 0.49%. The fund is rather small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is a bit too young to have a sufficient track record to assess, but it has outperformed the world market over the past year and underperformed it over the past three. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
If you expect the financial sector to do well over time as it recovers from the meltdown of several years ago, you might want to consider financial stocks for your portfolio. Remember, for example, how good banks are at levying fees and generating income, no matter what regulations are thrown at them.
More than a handful of financial companies had strong performances over the past year. Hartford Financial Services Group , for example, advanced 15%, though it recently reported a net loss in its last quarter, in part because of Hurricane Sandy as well as from selling off its Retirement Plans and Individual Life units. Low interest rates have hurt its performance as well. Hartford is aiming to pay down debt and may repurchase shares, too.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Genworth Financial sank 9%. It has been working on turning itself around, as it distances itself from its mortgage insurance business. Its long-term care insurance is also not a great profit driver lately, despite some competitors having exited that market. In addition, the company has warned that if interest rates remain low in the coming years, that will reduce profitability.
Prudential Financial shed 7%. It holds plenty of promise, particularly from its fast-growing business in Asia (which generated 30% of the company's profits last year), but it has also sustained losses from derivatives. Prudential has halted selling group long-term care insurance. In its recently reported fourth quarter, the company's revenue rose more than threefold, thanks to premium increases, fees, net investment income, and asset-management fee increases.
MetLife lost 6%, suffering from unenthusiastic interest in life insurance, domestically. The company aims to combat that, though, by focusing more heavily on fast-growing emerging markets and by shedding less-productive businesses. It has announced a new asset-management business, for example, and sold its banking unit to General Electric's GE Capital. In its last quarter, MetLife's operating revenue rose 12% over year-ago levels.
The big picture
Demand for financial services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
The article An Inexpensive Way to Diversify Into Financial Stocks originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool owns shares of General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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