On a recent episode of ETF 360, ProShares Head of Investment Strategy Simeon Hyman, CFA, joined VettaFi head of research Todd Rosenbluth to discuss challenges in the financial sector and how investors can avoid them.
Rosenbluth kicked things off by asking Hyman if a banking crisis is underway. “It doesn’t look that way,” said Hyman. “What we’ve seen from a month ago is more about a little bit of an asset liability mismatch and not a credit crisis.”
Hyman expressed that banks own long-term Treasurys. With interest rates having gone up, these banks have lost money. “If you had a lot of those, that can cause a problem for you as an individual bank, but it’s not a credit crisis.”
Just because there is no crisis, however, doesn’t mean banks are going to prosper, according to Hyman. “The key here is the cost of those deposits. You bring in those deposits so you can lend out that money,” he said. He also noted that one large bank had seen deposit costs rise from 8 basis points to 80.
“Guess what? 80 basis points is still far below the 4% or 5% people are seeing in money market funds. A crisis of contagion? No. But perhaps a challenge for profitability and prospering for these banks in the near term,” Hyman said.
ProShares offers the ProShares S&P 500 Ex-Financials ETF (SPXN) which provides exposure to the S&P 500, minus all financials.
“It simply surgically removes financials from the S&P 500,” Hyman said, offering that SPXN is a quick and easy way for investors who are concerned about the financial sector to strategically step out of it while remaining invested in other sectors that could potentially fare better.
Aside from being a tool for investors who are wary of financials, it could be a useful tool for people who work in that sector and rely on it doing well to diversify.