An ETF for Capital Markets


Carla Pasternak Image Carla Pasternak Editor, The Income Investor

Big U.S. banks have been on a tear since passing the Fed's annual stress test and announcing plans to increase dividend payouts and share buybacks, notes Dr. Carla Pasternak, editor of Dow Theory Letters's The Income Investor.

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But there is more to the financials sector than the 34 "too big to fail" banks. The sector covers more than half a dozen industries from banks and insurance to capital markets and real estate. Many of these industries are doing well, but one of them is making exceptional gains—capital markets.

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What exactly is the capital markets industry? Essentially, it provides investment services. The industry includes investment banks asset managers, brokerages and exchanges.

Investment banks benefited from a 29% year-over-year increase in equity underwriting, thanks largely to a tenfold increase in initial public offerings (IPOs), says the Securities Industry and Financial Markets Association (SIFMA).

Debt also increased, with corporate bond issues rising 18% and asset-backed loans up 38% compared to the 2016 first-quarter.

Together, equity and long-term debt issuance in the U.S. is on a positive trend, rising 19% from the prior quarter and 13% from the prior year. And investment banks that raise these securities for fees and a percentage of the asset values are prime beneficiaries.

Mergers and acquisitions (M&As) in the U.S. also kicked off the year strongly with volumes up 19% and deal size up 52% year-over-year, reports Mergermarket.

Meanwhile, asset managers, after five consecutive quarters of growth, enjoyed a further 5% year-over-year jump in assets under management to an all-time high of nearly $11 trillion in the first quarter.

Looking ahead, the positive trends look to continue, with the capital markets likely to benefit from rising interest rates.