ETF Talk: Banking on International Finance Fund

Banks have been on the recovery trail this year. Recent concerns about the spendthrift U.S. government going off the fiscal cliff likely will take weeks to resolve, giving investors a chance to buy bank stocks that should trade lower due to the uncertainty and the potential economic problems that would result from the lapse of the Bush tax cuts and sequestration. Those reasons could make now a good time to look outside of the United States for investment opportunities in the financial industry. An international finance exchange-traded fund (ETF) worth considering is the iShares S&P Global Financials Sector Index Fund (IXG).

IXG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P Global 1200 Financials Sector Index. That index is a composite of 31 local markets from seven other indices, which combine to capture roughly 70% of the world’s capital markets.

IXG, along with banks in general, has been on an upward climb in recent months. The fund is up 24.15% year-to-date. With a worldwide recovery in housing markets starting to take hold, look for financial institutions to benefit. Once the fiscal cliff is resolved, the path should be clear for bank stocks to climb. IXG includes some U.S.-based banks but foreign holdings should help to lift the fund until the U.S. government resolves its current problem of spending so far beyond its means that it is nearing a fiscal cliff.

As you would assume from a fund with “Financials Sector” in the title, IXG is invested for the most part in banks: 88.92% of the fund is held by the financial services sector. The only other notable percentage is held by real estate, comprising 10.20% of the fund.

While one sector makes up most of IXG’s holdings, the same cannot be said for any one individual company. The fund’s top 10 holdings only make up 25.06% of its total assets, and none of these holdings represents more than 4% of the whole. The top five holdings are, in order (followed by their percentage of total assets): HSBC Holdings PLC, 3.82%; Wells Fargo & Company Common St, 3.34%; Berkshire Hathaway Inc Class B, 3.32%; JP Morgan Chase & Co. Common St, 3.21%; and Bank of America Common, 2.18%.

Recent trends indicate that the financial sector (which makes up most of IXG’s holdings), as well as the real estate market (which makes up most of the rest), will keep improving in the future. Any eventual resolution in Washington to the fiscal cliff situation should only aid IXG’s advance.

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