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 * ETFs


IF MORE BANKS CRASH — HERE'S HOW TO AVOID LOSING MONEY



Licensing
 * MATT KRANTZ
 * 08:00 AM ET 03/23/2023

Worried more banks will fall apart like Silicon Valley Bank and Signature Bank?
ETFs can help protect you from the risk of such bum investments in the S&P 500.

X
But the good news is that if you're prepared,

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But it takes effort to sidestep financials. After all, the financial sector is
the third-largest part of the S&P 500 — accounting for 13.2% of the index. But
there are both specialized ETFs that leave out the volatile financial sector and
strategies that intentionally omit financial stocks.

"We believe investors should react to the (recent bank failure) developments
with some caution as sentiment around bank conditions remains fragile and
depositors in other banking institutions could react irrationally to the recent
failures," said a report from LPL Financial.




HOW FINANCIALS ARE HURTING YOU

Simply holding financial stocks is hurting your returns. Even Warren Buffett is
losing billions on his bank stocks.

Specifically, from March 8 prior to the Silicon Valley collapse through March
20, the S&P 500 fell roughly 1%, says Howard Silverblatt of S&P Dow Jones
Indices. That's entirely due to a more than 10% drop by financials. The S&P 500
would be up marginally if financials were removed.



Failures aren't the only risk to financials either. Rising interest rates are
also stressing financial markets.

Bank and financial ETFs show the risks, too. A big 8.5% drop this year in the
Financial Select Sector SPDR ETF (XLF) is dragging down the SPDR S&P 500 ETF
Trust. Including financials, the S&P 500 is up just 3%. But if you remove
financials, as does the ProShares S&P 500 Ex-Financials ETF (SPXN), you'd be up
6%, an improvement of three percentage points.

Longer-term financials are laggards, too. The Financial Select Sector SPDR is up
just 13% in the past five years. That lags the S&P 500's nearly 50% rise in that
time.

--------------------------------------------------------------------------------

How To Invest In Both Bull And Bear Markets

--------------------------------------------------------------------------------




REMOVING BANK STOCKS

The ProShares S&P 500 Ex-Financials is the purest way to own the S&P 500 without
banks, insurance companies or brokers.

The ETF leaves out the roughly 100 financial stocks in the S&P 500. So while
your top stocks are still Apple (AAPL) and Microsoft (MSFT), just like the S&P
500, you skip on the 1.6% position in Berkshire Hathaway (BRKB), considered a
financial, and 1.1% position in JPMorgan Chase (JPM).

Some investors might simply own ProShares S&P 500 Ex-Financials if they want
nothing to do with financials, says Todd Rosenbluth, head of research at
VettaFi. But the ETF can be added to a portfolio with an S&P 500 ETF, too, "to
reduce the exposure to the hard-hit sector," he said.




FINANCIAL-FREE STRATEGIES

Another option to bypass financials is the Invesco QQQ Trust (QQQ). The ETF owns
the 100 most valuable companies trading on the Nasdaq, but excluding all the
financials. That leaves investors with a mostly tech-heavy portfolio.

Information technology accounts for nearly half the QQQ's portfolio. Tech is
followed by a nearly 17% weight in communications services and nearly 15%
position in consumer discretionary.

"QQQ is a good way to avoid financials as the large-cap growth ETF excludes
financial and goes across traditional sectors like communications services,
consumer discretionary, health care and information technology," Rosenbluth
points out.

Additionally, there's a lower cost version, Invesco Nasdaq 100 ETF (QQQM). QQQM
charges just 0.15% versus QQQ's 0.2% annual fee.

For investors looking to reduce, but not entirely eliminate financials,
Rosenbluth says ETFs tied to growth indexes are worth considering. Vanguard
Growth ETF (VUG), for instance, still maintains a 3% exposure to financials, he
says.

Skipping financials might prove alarmist. Meanwhile, the government is
aggressively trying to limit further bank blowups in this crisis. But some ETFs
shield you from the sector's troubles no matter what.


FINANCIALS HURT S&P 500 PERFORMANCE

ETFs with more financial stocks lag

ETF Symbol 1-year % ch. Year-to-date % ch. % in financials Invesco QQQ Trust
(QQQ) -14.2% 15.0% 0% ProShares S&P 500 Ex-Financials (SPXN) -9.8% 6.0% 0%
Invesco NASDAQ 100 (QQQM) -14.2% 15.0% 0% SPDR S&P 500 (SPY) -12.5% 2.9% 12.30%
Financial Select Sector SPDR Fund (XLF) -20.7% -8.5% 94% SPDR S&P Bank (KBE)
-34.2% -20.0% 100% SPDR S&P Regional Banking (KRE) -39.9% -25.9% 100%

SOURCES: IBD, S&P GLOBAL MARKET INTELLIGENCE, ETF.COM

Follow Matt Krantz on Twitter @mattkrantz

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Join IBD Live Each Morning For Stock Tips Before The Open





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