For those that do not want to brave the polar vortex that would be associated with a visit to Wall Street but still want to participate in upside with investment banking stocks, there are some exchange traded funds that will do the trick.
Since 2014 is expected to be another strong year for the financial services sector, ETFs heavy on investment banks and broker-dealers merit near-term consideration.
“We have a positive 2014 fundamental outlook on the Investment Banking & Brokerage sub-industry. We believe equity and fixed income underwriting are performing strongly, with some landmark transactions announced in 2013, while mergers and acquisitions (M&A) can improve further on top of gains in 2013,” said S&P Capital IQ in a new research note.
S&P Capital IQ recently boosted its rating on the U.S. financial services sector to overweight from marketweight. Earlier this week, the research firm sounded a bullish tone on ETFs holding major money center banks, regionals and property and casualty insurance providers. [Fun With Financials ETFs in 2014]
Among individual investment banking names, S&P has four-star ratings on new Dow component Goldman Sachs (GS) and rival Morgan Stanley (MS). The research firm also has a three-star rating on IntercontinentalExchange Group (ICE). Those stocks are three of the top four holdings in the iShares U.S. Broker-Dealers ETF (IAI) , combining for 21.5% of the ETF’s weight.
IAI is rated marketweight by S&P Capital IQ, although it was 2013’s top-performing financial services ETF. Even with that honor, many of the fund’s 22 constituents trade at reasonable valuations. For example, Goldman trades around 12 times 2014 earnings. For its part, Morgan Stanley has reported four consecutive quarters of higher earnings and revenue. [2013's Best Financial Services ETF]
On Thursday, JPMorgan listed Goldman Sachs among its top investment banking picks for 2014.
S&P also has a marketweight rating on the $138 million SPDR S&P Capital Markets ETF (KCE) . KCE is more of a play on asset management firms and broker-dealers as no pure play investment banks are found among the ETF’s top-10 holdings. In fact, ETF issuer WisdomTree (WETF) is KCE’s largest holding at a weight of 3%. KCE’s tenth-largest holding is Northern Trust (NTRS), parent company of the FlexShares ETF provider.
KCE is split 63.6% to asset managers and custody banks and 36.4% to investment banks.
“In conclusion, we have positive fundamental sub-industry outlooks for both the Investment Banking & Brokerage and Asset Management & Custody Banks sub-industries. In our opinion, much of the success for these two sub-industries will be dependent on gains in the capital markets, continued asset flows into equities, and increased transactions for both mergers & acquisitions (M&A) and equity and debt underwriting,” said S&P Capital IQ in the note.
SPDR S&P Capital Markets ETF