Senator Dodd’s Newly Proposed Bill Will Hurt Financial ETFs

“Although the future of reform legislation remains unclear, a recent bill proposed by Senator Christopher Dodd (D., Conn.) could potentially hinder the financial sector and its exchange traded funds,” Kevin Grewal Reports From The Street.

Grewal goes on to say, “This new proposed reform, which is expected to be forced onto the Senate Finance Committee as early as next week, aims to give the Federal Reserve extraordinary control and power over large financial institutions. More specifically, it would give the Fed the power to break up any large financial institution that could potentially jeopardize the stability of the financial system.”

“Additionally, the bill will give the Fed authority and control over the nation’s largest bank-holding companies, those with assets of $50 billion or more, and be the focal point of oversight and regulation over mortgage-related businesses and non-bank financial firms like insurance companies. The bill specifically aims to regulate risky financial instruments, like mortgage-backed securities. Another caveat of the bill includes Federal Deposit Insurance Corporation oversight over state-chartered banks with less than $50 billion in assets,” Grewal Reports.

Some equities that would be influenced by this bill include:
 
■Financial Select Sector SPDR(XLF), which boasts Bank of America(BAC) and JP Morgan Chase(JPM) as its top holdings, both of which are the nation’s top holding companies.
 
■iShares Dow Jones US Financial Services(IYG), which boasts Wells Fargo(WFC) and Citigroup.
 
■iShares Dow Jones US Broker-Dealers(IAI), which boasts Goldman Sachs(GS) and Morgan Stanley(MS) as top holdings.
 
■iShares Dow Jones US Insurnace(IAK), which holds companies like Prudential Financial(PRU) and Aflac Inc.(AFL).

See More Details: HERE

We put together some details on the four financial ETFs below:

The investment (XLF) includes companies from the following industries: banks, diversified financials, insurance and real estate. The fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index. This fund has adopted a policy that requires it to provide shareholders with at least 60 days notice prior to any significant material change in its policy or its underlying index. It is nondiversified.

The investment (IYG) seeks investment results that tracks Dow Jones U.S. Financial Services Index. The fund generally invests at least 90% of assets in securities of the underlying index and depositary receipts representing securities of the underlying index. It may invest the remainder of assets in securities not included in the underlying index but which BGFA believes will help the fund track underlying index, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of money market funds advised by BGFA. The fund is nondiversified.

The investment (IAI) seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Select Investment Services index. The index measures the performance of the investment services sector of the U.S. equity market. The index includes companies providing a range of specialized financial services, including securities brokers and dealers, online brokers and securities or commodities exchanges. The fund invests at least 90% of assets in securities of the index and in depositary receipts representing securities of the index. It is nondiversified.

The investment (IAK) seeks investment results that tracks Dow Jones U.S. Select Insurance Index. The fund generally invests at least 90% of assets in securities of the underlying index and depositary receipts representing securities of the underlying index. It may invest the remainder of assets in securities not included in its underlying index but which BGFA believes will help the fund track underlying index, and in futures contracts, options on futures contracts, options and swaps as well as cash and cash equivalents, including shares of money market funds advised by BGFA. It is nondiversified.

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