Financial Moving And Shaking Doesn’t Rattle ETFs

Financial exchange traded funds (ETFs) are breaking even so far in trading today after lots of news spilled out from the sector:

• Lehman Brothers (LEH) announced a loss of $2.8 billion, which was right in line with its forecasts. Last week, the nation’s fourth-largest investment bank announced it was expecting a quarterly loss and would raise $6 billion in fresh capital, Dan Wilchins for Reuters reports. Lehman shares were up so far in trading today, and now the markets are keeping an eye on how they’re going to record hard-to-value assets to see if more write-downs are in the offing.
• American International Group (AIG) put a new CEO in place. AIG is the world’s largest insurer, has has lost billions in bad bets on the mortgage market, reports Madlen Read for the Associated Press. In the first quarter, they lost $7.8 billion. The new CEO, Robert Willumstad, says they plan to conduct a thorough review of AIG’s operations. The company is also facing a regulatory probe by the Securities and Exchange Commission (SEC), so its troubles could just be starting.
• And finally, U.S. prosecutors are gearing up to file criminal charges against managers of two Bear Stearns hedge funds, reports Matt Daily for Reuters. The collapse of those funds last year helped kick off the credit crisis. The managers could be charged with securities fraud within the week. So far, there’s no indication that charges would be filed against Bear Stearns itself.

We’re all wondering if we’re at the bottom with financials. In the wake of this morning’s news, it certainly appears that the troubles might continue to weigh down the sector for some time. In addition to straight plays on the financial sector, there are a number of long/short funds available as well. The financial-focused ETFs include:

• Rydex Inverse 2x S&P Select Sector Financial (RFN), launched June 10
• Rydex 2x S&P Select Sector Financial (RFL), launched June 10
• ProShares Short Financials (SEF), data not available
• ProShare Ultra Financials (UYG), down 36.8% year-to-date
• Financial Select Sector SPDR (XLF), down 19.4% year-to-date
• iShares Dow Jones US Financial Services (IYG), down 21.7% year-to-date
• iShares Dow Jones US Broker-Dealers (IAI), down 24.7% year-to-date

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

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