Cash In On Wall Street Rally With This Top Finance Sector Play

As the stock market hits new highs, hot stocks in the investment bank, brokerage and related groups tracked by IBD are also yielding big gains.


Among IBD’s 197 industry groups, money center banks are up more than 30% this year, investment managers are up 26% and specialty financial services stocks up 21%. The investment bankers and brokers group is up 16%.

Each group contains dozens of stocks, so keeping track of the hot stocks in each of those groups can pose a challenge. The iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI) offers one way to gain exposure to the financial sector.

Since sector ETFs hold a basket of stocks, they tend to incur less risk than owning individual stocks. For instance, if one or several holdings in IAI have a bad day, there are still other stocks to help offset the losses.

Long-Term Outperformer

The $893.5 million iShares ETF tracks the Dow Jones U.S. Select Investment Services Index, giving investors access to U.S. investment banks, discount brokerages and stock exchanges. IAI marked its 15th anniversary in May.

The iShares fund is outpacing the broader market with a 30% year-to-date gain, heading into Thursday. The S&P 500 is up 18% this year. IAI has also been a solid performer over the longer haul. Average annual returns over the past three, five and 10 years were 18.9%, 23.3% and 17.7% through Wednesday’s close, according to Morningstar Inc.

SPDR S&P 500 ETF Trust (SPY), which tracks the benchmark index, returned 17.8%, 17.3% and 16.1% over the same periods.

Investment banking and brokerages accounted for nearly 76% of assets as of Aug. 4. Financial exchanges and data weighed in at almost 24%; asset management and custody banks made up less than 1%.

Hot Stocks Fuel IAI’s Gains

Morgan Stanley (MS) and Goldman Sachs (GS) are by far the biggest holdings, at about 20% each. Both stocks are trading at or near record highs. Together, the two banks represent nearly 42% of the 25-stock portfolio.

Goldman Sachs, up 45% this year, is shaping a flat base with a 393.36 buy point, according to IBD MarketSmith chart analysis. A 94 Composite Rating, which gives investors a quick way to gauge a stock’s key growth rates, puts the Dow Jones component among the top stocks in the 22-stock money center banks group.

Morgan Stanley is near the top of its buy range from a 94.37 flat-base entry. It’s rallied more than 40% this year. An 89 Composite Rating also places the bank among the group’s hot stocks.

Other top 10 holdings with a composite score of 80 or better include Nasdaq (NDAQ), CBOE (CBOE), Intercontinental Exchange (ICE), Raymond James Financial (RJF) and Charles Schwab (SCHW). The top 10 add up to roughly 78% of assets.

IAI is trying to break out past a 103.68 buy point of a seven-week flat base. The buy range tops out at 108.86. While that’s the ideal entry for a base, it’s also OK to buy shares as an ETF rebounds off support at the 10-week moving average.

IAI charges a 0.41% expense ratio.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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