Simeon Hyman, CFA, Global Investment Strategist for ProShares, joined Keith Black, Managing Director of RIA Channel to discuss the state of the banking sector and how investors can thoughtfully reduce S&P 500 exposure to Financials through Ex-Sectors ETF: SPXN.
Even though several large US banks failed this year, Hyman doesn’t believe that we are in a banking crisis. The failure of several banks was due to rising rates and an asset-liability mismatch, not a deterioration in credit conditions, explains Hyman. Credit spreads are near long-term averages. Falling bond yields and rising bond prices are reducing inflation expectations.
Banks are facing headwinds, which will challenge net interest margins. While depositors are demanding higher yields, borrowers are simultaneously proud of their low rates on mortgages issued around 2020 and are hesitant to sell or refinance their home. In addition to falling net interest margins, large banks may be faced with rising capital requirements and FDIC insurance premiums.
Year to date, the financial sector has substantially underperformed the S&P 500 Index. SPXN, the ProShares S&P 500 ex-financials ETF, offers an investment in all stocks in the S&P 500 Index outside of the financials and real estate sectors. The ETF holds all non-financial stocks in the S&P 500 Index on a capitalization-weighted basis.
Investing in an ex-sector ETF allows investors to easily eliminate or reduce exposure to specific sectors. This may be most appropriate for investors who believe that a sector will underperform or who are already overweight the sector in other parts of their portfolio.
Resources:
SPXN – S&P 500 Ex-Financials ETF
This is not intended to be investment advice.
Diversification may not protect against market risk.
ProShares is not affiliated with RIA Channel.
There is no guarantee that distributions will not be made in the future. There is no guarantee that dividends or interest income will be paid.
There is no guarantee any ProShares ETF will achieve its investment objective.
Shares of any ETF are generally bought and sold at market price (not NAV) and are not individually redeemed from the fund. Your brokerage commissions will reduce returns.
This fund is exposed to the stocks of large-cap companies, which tend to go through cycles of outperformance or underperformance lasting up to several years relative to other segments of the stock market. As a result, large-cap returns may trail the returns of the overall stock market or other market segments.
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ProShares ETFs (ProShares Trust and ProShares Trust II) are distributed by SEI Investments Distribution Co., which is not affiliated with the funds’ advisor or sponsor.
SEI Investments Distribution Co. (“SIDCO”), is not affiliated with RIA Channel.