Global Financial Services Stocks Revive
When you've been banging your head against the wall, it feels so good when you stop.
Global banking problems, though far from solved, aren't as brutally painful as they've been at times during the past two years. A number of banks, especially those with substantial emerging-markets business, have left the head-banging behind.
With earnings and stock prices of global financial services companies rising, the sector once again is looking like a viable investment for a well-rounded portfolio.
"While there is currently a combination of economic strength and optimism, many banks operating in emerging markets are benefitting mostly from economic strength," said Andrew McMenigall, an
Despite the global crisis, financial services companies remain significant contributors to the world's economy, McMenigall noted, which makes them an important portfolio component.
These major stock holdings in his fund reflect that belief:
"There's been a surge in the shares of banks because governments are making money available to help the banks survive," explained
The uncertainties associated with any one stock is the reason why he prefers the broader exchange-traded funds SPDR S&P International Financial Sector ETF (IPF) and iShares S&P Global Financial ETF (IXG). Rather than core holdings, these financial services ETFs are "complementary pieces of the puzzle," he said.
Even though a number of global bank stocks have already had a good run, he doesn't consider the cycle to be over and sees more opportunities ahead.
"The time to jump off this merry-go-round would be if the cycle of low interest rates were to change or there was a change in policy by regulatory agencies," said DeLegge.
Right now, many banks are hoarding cash because they don't know what regulatory agencies are going to do and wouldn't want to be caught again in a situation where they lack enough capital, he said.
"We saw the U.S. dollar slide in the recent quarter and that helped overseas financial names," noted
Conditions might be right for the world's banks to outperform other sectors because their stock has been unfairly -- and in some cases fairly -- punished and positive days are ahead, Tjornehoj said.
Here are some of the most popular holdings in global financial services funds, according to Tjornehoj:
"We expect global financial services companies in our portfolio to continue to consistently manage their businesses as they have the past few years, which is what allowed them to withstand trying market conditions," concluded McMenigall. "Any positive sentiment in the stock market would drive these financials higher."
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