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With no Help From Goldman, Broker-Dealers ETF Rises


With shares of Golman Sachs (GS), the venerable Wall Street bank, flirting with $170, some investors may opt to access the stock via an exchange traded fund such as the iShares US Broker-Dealers ETF (IAI) .

This year, that has proven to be an efficacious strategy as shares of Goldman Sachs, one of the newest additions to the Dow Jones Industrial Average, are lower by nearly 6% while IAI is up almost 3.1%. Strength in IAI is nothing. It was last year’s top-performing financial services ETF with a gain of 65.7% and investors are taking notice. [Meet 2013's Best Financial Services ETF]

The ETF had $209.1 million in assets under management as of Dec. 19, 2013, nearly double its total on June 10, 2013. That number is now up to $265.1 million.

Although Goldman, 7.3% of IAI’s weight and the ETF’s largest holding, has not chipped in any upside for the fund this year, IAI has found help in other areas. Shares of Goldman rival Morgan Stanley (MS), IAI’s second-largest holding at almost 7.2%, are up 5.1%. Morgan Stanley is among the banks expected to receive permission from the Federal Reserve this week to boost its dividend. [ETFs for Rising Bank Dividends]

Discount brokers are also contributing to IAI’s upside in significant fashion. Helped in part by its growing presence in the ETF industry, Charles Schwab (SCHW) has surged 10.5% this year. TD Ameritrade (AMTD) has soared over 16%. E*Trade (ETFC) may be retiring the ubiquitous baby in its commercials, but its shares are up 25.5% year-to-date.

Those stocks combine for 19% of IAI’s weight. Interestingly, few of IAI’s top-10 holdings currently reside near all-time highs. Schwab would need to rise another 36% to reclaim its all-time high while Goldman would need to tack another 41%. Shares of Morgan Stanley would need to nearly triple to reclaim pre-financial crisis highs.

The same goes for IAI. The ETF debuted in the second quarter of 2006, meaning it enjoyed a nice run prior to the crisis, but that also means IAI is one member of a group of some noteworthy ETFs that have a long way to go to recapture lost glory. In the case of IAI, the ETF would need to gain almost 41% to run back to its pre-crisis highs. [Some ETFs Nowhere Close to Pre-Crisis Highs]

iShares US Broker-Dealers ETF