The Financials sector ranks ninth out of the ten sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on aggregation of ratings of 45 ETFs and 237 mutual funds in the Financials sector as of April 4, 2014. Prior reports on the best and worst ETFs and mutual funds in every sector are here.
Figures 1 and 2 rank the five best and worst ETFs and mutual funds in the sector that meet our liquidity standards. Not all Financials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 21 to 549), which creates drastically different investment implications and ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst ETFs and mutual funds, which allocate too much value to Neutral-or-worse-rated stocks.
To identify the
The insurance industry has always been defensive and stable simply given the nature of its business model. The earnings are fairly predictable and the dividend is consistent, making it a great stock to hold in a diversified portfolio. Recently, however, the rise of interest rates have caused companies in the insurance industry to be more profitable and I believe that trend will continue as rates bounce back up from their historic lows.
(click to enlarge)
To understand why this correlation exists, it's important to understand how the insurance industry works and more importantly how it makes money at a very high level. When you look at a life insurance contract, for example, actuaries make a series of assumptions about a person's life and also about how markets will act throughout the life of the contract. Since the income that the company receives from insurance premiums need to be invested wisely,