This morning, Matt Schifrin at Forbes published an article called A European Lynch Mob Is Coming For Bank of America in which he excerpts John Mauldin's Thoughts from the Frontline Weekly Newsletter. The excerpt focuses on Mauldin's assertion that big banks including Citigroup (NYSE:C) and Bank of America (NYSE:BAC) were negligent in underwriting subprime mortgages. Additionally, it seems that a law firm has been hired by Fannie and Freddie's parent the FHFA.
So is your financial ETF diversified with Citigroup and Bank of America as small parts of a pie, or are you overweight Citigroup and Bank of America without knowing it?
If you own the SPDR KBW Bank ETF (AMEX:KBE), about 18% of your investment is in these two companies - with another 8.5% in JP Morgan (NYSE:JPM).
If you're in the iShares Dow Jones U.S. Financial Services Index Fund (AMEX:IYG), about 17.3% is in Citigroup and Bank of America, with another 22% in JP Morgan and Wells Fargo (NYSE:WFC).
A more diversified ETF is the Vanguard Financials ETF (AMEX:VFH), with no more than 6.7% in any one holding according to the last data available. The largest holding is Wells Fargo at 6.7%, Bank of America at 6.02%, Citigroup at 4.58%, Goldman Sachs (NYSE:GS) at 4.05% and so on.
Take away: Know what you're holding.
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