Financial services exchange traded funds have struggled since the beginning and the retrenchment has been widespread.
The sector has disappointed, particularly when considering its reputation for being solid performances in the first half of April, but as investors have turned to sectors with value tilts, bank stocks and ETFs have been left behind. [Top Sector Bets for April]
The Financial Select Sector SPDR (XLF) and the Vanguard Financials ETF (VFH) are lower by an average of 2.2% since April, but other financial services have been worse, a group that includes the iShares US Broker-Dealers ETF (IAI).
IAI’s 5.7% loss since April 1 is a sharp turn of events for what was one of last year’s better-performing financial services funds. In fact, IAI was sturdy for much of the first quarter even as Dow component Goldman Sachs (GS), the ETF’s largest holding at a weight of 6.3%, flailed. [Broker-Dealers ETF Rises Without Goldman's Help]
At the fundamental level, IAI has been plagued by not only the pullback in the broader financial services sector, but the flap caused by new and deserved scrutiny on high frequency trading following the release of the Michael Lewis book “Flash Boys.”
Proving the vulnerability of some brokers to the HFT debate, E-Trade (ETFC) has plunged almost 8% since March 30 when Lewis appeared on “60 Minutes.” Shares of TD Ameritrade (AMTD) are down 9.7% over the same time. Those stocks combine for almost 10% of IAI’s weight.
Now IAI’s technicals look discouraging.
“These guys usually need to do well, just like its preferable to see banks to be acting well for a healthy market. So if the stockbrokers chart is not making nominal highs, is there a message? And it’s looking like it’s making a top, is that a leading indicator?,” notes Captain John Charts.
IAI’s chart shows sign of a bearish head and shoulders pattern. The ETF has not traded above its 50-day moving average since last month and is now just 2.3% above its 200-day line.
iShares US Broker-Dealers ETF
Chart Courtesy: Captain John Charts