Insurance ETFs Are On The Verge Of A Breakout

Despite a slow start to the year, the financial sector is starting to show signs of life.  The combination of higher interest rates and additional cues from the Federal Reserve are working in tandem to support stock prices of banks, brokerage companies, and insurance institutions.

Insurance companies in particular experienced a summer sell off that has now resolved it a new uptrend on the verge of a technical breakout.

The iShares U.S. Insurance ETF (IAK) tracks 67 domestic insurance companies that focus on life, property and casualty, and full line insurance coverage.  This ETF has over $122 million in total assets and charges an expense ratio of 0.43 percent.

IAK takes a market-cap weighted approach to its index construction, which provides greater exposure to the largest companies.  American International Group (AIG) and Metlife Inc (MET) are the two largest holdings in IAK and together represent 25 percent of the total asset allocation. 

So far this year, IAK has only gained 3.50 percent in total return but appears to be making a sharp move higher over the last several weeks.  This ETF is now within striking distance of new year-to-date highs on its march to recover all of its losses since the 2008 financial crisis.

Another key fund in this space with a unique index approach is the SPDR S&P Insurance ETF (KIE).  This ETF holds 50 stocks of insurance companies with a modified equal weighted allocation that allows for each holding to have a similar pull on the total return. 

The benefit to this style of equitable distribution is that smaller companies have a larger impact on the performance of the fund.  In addition, KIE sets itself apart by offering exposure to reinsurance companies along with large insurance brokers. 

Similar to IAK, KIE is poised to break out above its overhead resistance, which would be a major milestone for these financial stocks.