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Getting exposure to the world’s largest financial companies

Berkshire Hathaway is the largest single holding of this ETF.

By now we’re all familiar with the trauma large financial institutions put the global economy through following the fall out in the US residential market. US banks moved quickly to repair their balance sheets after being pulled bank from the brink by the US Federal Reserve. Over in Europe, things have taken longer to fix.

In general, global banks are in good financial footing from a balance sheet perspective. But more costly regulatory requirements, together with the withdrawal from previously lucrative trading businesses have depressed the high return on equity these banks delivered in the run up to the global financial crisis. The valuations have adjusted to reflect this.

The iShares Global Financials ETF provides exposure to the world’s largest financial companies, comprising banks, insurers, asset managers, and real estate. Everyone familiar with Warren Buffett will recognise the name Berkshire Hathaway, which is the largest single holding of the ETF, by virtue of its investment in subsidiaries like GEICO. GEICO is one of America’s largest property and casualty insurers and Berkshire accounts for nearly 4% of the ETF.

Other big names included in the product are JPMorgan (3.4%), Bank of America (2.5%), and Goldman Sachs (1.15%). The ETF has 226 constituents in total, represented by listings in sixteen countries, all of which are in developed markets.

Global financial stocks have experienced their fair share of trauma as a result of the global financial crisis, which some of them contributed to. Others were affected in lesser degrees. You can see the US dollar returns in the table below, which have lagged returns seen in the broader US market:

 

Annualised performance

1 year

3 years

5 years

iShares Global Financial ETF

5.29%

14.01%

8.24%

Total expense ratio (TER):

0.47%

   

Net assets ($’m):

257.20

   

 

These figures do not take into account the performance you would have received in rands as a result of currency fluctuations. To give you a sense of how attractively priced these companies are at the moment, consider that the average price to book and price earnings ratio these companies are now trading at is 1.34 and 14.5 respectively. By contrast, Firstrand is trading at over 3x price to book, and over 15x price earnings.

This ETF provides a convenient way for investors to get exposure to the world’s largest financial companies.

** This is a sponsored education series focused on offshore investing. The content is sponsored by Standard Bank Webtrader and Moneyweb are the content creator.

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