In this week’s Macro Theme, we review “Draghi’s Dilemma” and the opportunity...
How Sandy Affects These 2 ETFs
11/13/2012 8:00 am EST
When natural disasters occur like the Sandy superstorm that hit the Northeast coast recently, some sectors can benefit from the rebuilding after the disaster, while other will be hamstrung for quite a while. It pays to know which is which, notes Doug Fabian of Making Money Alert.
It's been a rough go of it for the entire country, and the cleanup and restoration of the damage from Sandy is just beginning. One ETF that could ride the post-storm reconstruction wave of Hurricane Sandy is the iShares Dow Jones US Home Construction Index Fund (ITB).
Companies included in the fund should be among those to benefit the most from the post-storm construction efforts. In fact, homebuilders and home renovation big-box stores could benefit from the need to rebuild homes, office and apartment buildings, and in some cases, entire neighborhoods.
The fund's Top Ten holdings feature an array of well-known companies: Lennar, Pulte Group, DR Horton, Toll Brothers, NVR, Home Depot, Ryland Group, MDC Holdings, Lowe's, and KB Home.
The ETF has been on the rise this year. With the latest disaster, I expect the fund to climb further in the weeks and months ahead, as re-construction and renovation spending boost revenues and profits at the companies that ITB's performance is designed to track.
The devastating loss of life and property caused by Hurricane Sandy will also be accompanied by billions of dollars in claims that insurers will need to pay. An exchange traded fund that is likely to absorb a big blow from the storm is the SPDR S&P Insurance ETF (KIE).
The SPDR S&P Insurance ETF is designed to provide investment results, before fees and expenses, that correspond generally to the total return of an index that tracks the performance of publicly traded insurance companies. In times of natural disaster, property and casualty insurers end up battered along with the various risks that are covered by their policies. As a result, the share prices of insurers typically fall in response to such calamities.
The S&P Insurance Select Industry Index that KIE tracks is a modified equal-weighted index. That index is comprised of large insurance companies that are listed on the NYSE or on another US exchange. The index includes representation of the insurance industry's diverse sub-sectors, including personal and commercial lines, property/casualty insurance, life insurance, reinsurance, insurance brokerage and financial guarantee.
The fund actually had been having a good year until Hurricane Sandy knocked it down recently. Much like the people in the storm-ravaged sections of the United States that took the brunt of the high winds, flooding and other storm-related damage, the fund still will need a bit of time to recover.
If you had been thinking about including the insurance sector in your portfolio, there is no rush to do so now. Just wait until insurance stocks and the KIE fund stabilize as the exact financial fallout from the superstorm becomes known.
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