ETF Talk: Insurers Will Take a Big Hit from Hurricane Sandy

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

The devastating loss of life and property caused by Hurricane Sandy will be accompanied by billions of dollars in claims that insurers will need to pay. One exchange-traded fund (ETF) that is likely to absorb a big blow from the storm is the SPDR S&P Insurance ETF (KIE).

The SPDR S&P Insurance ETF is designed to provide investment results, before fees and expenses, that correspond generally to the total return of an index that tracks the performance of publicly traded insurance companies. In times of natural disaster, property and casualty insurers end up battered along with the various risks that are covered by their policies. As a result, the share prices of insurers typically fall in response to such calamities.

That recent dip is shown by the chart of KIE below.

The S&P Insurance Select Industry Index that KIE tracks is a modified equal-weighted index. That index is comprised of large insurance companies that are listed on the NYSE or on another U.S. exchange. The index includes representation of the insurance industry’s diverse sub-sectors, including personal and commercial lines, property/casualty insurance, life insurance, reinsurance, insurance brokerage and financial guarantee.

The fund actually had been having a good year until Hurricane Sandy knocked it down recently. Much like the people in the storm-ravaged sections of the United States that took the brunt of the high winds, flooding and other storm-related damage, the fund still will need a bit of time to recover.

If you had been thinking about including the insurance sector in your portfolio, there is no rush to do so now. Just wait until insurance stocks and the KIE fund stabilize as the exact financial fallout from the super-storm becomes known.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.

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