An ETF for Capital Markets
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.
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.
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.