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The Q3 earnings season hasn’t been all that encouraging for the financial sector as total earnings for 89.1% of the sector’s total market capitalization are up only 1.7% on 2.3% revenue decline. This is worse than Q2 and the four-quarter average earnings growth of 8.1% and 6.2%, respectively, on 0.8% and 1.3% revenue growth (read: Guide to the 7 Most Popular Financial ETFs ). Earnings surprises were also unimpressive with 53.7% of the companies beating earnings estimates and 42.7% of them beating on top lines. In particular, earnings from the insurance industry have been weaker with most players failing to beat or meet either our earnings or revenue estimates. MetLife (NYSE: MET ), Prudential Financial (NYSE: PRU ) and American International (NYSE: AIG ) missed our estimate on the earnings front while Chubb Corp (NYSE: CB ) an Aflac Inc. (NYSE: AFL ) lagged revenues. However, Travelers (NYSE: TRV ) and Allstate (NYSE: ALL ) surpassed our estimates on both the top and bottom lines. Insurance Earnings in Focus Earnings at one of the leading property and casualty insurer – Chubb – strongly outpaced our estimate by 20.30% and improved 9% from the year-ago quarter. However, revenues of $3.47 billion missed the Zacks Consensus Estimate of $3.51 billion. Another property and casualty insurer and an industry bellwether, Allstate , topped the Zacks Consensus Estimate by 20 cents with earnings of $1.52, which improved 9.3% from the year-ago quarter. Revenues rose 1% year over year to $9.03 billion and edged past the Zacks Consensus Estimate of $7.98 billion (see: all the Financial ETFs here ). Aflac , the seller of supplement health insurance, posted earnings per share of $1.56, beating our estimate by eight cents and improving 3.3% year over year. However, revenues declined 12.1% year over year to $5.00 billion and fell shy of our estimate of $5.11 billion. Earnings of $2.93 at personal property and casualty insurer, Travelers trumped the Zacks Consensus Estimate by 72 cents and improved 12.3% from the year-ago earnings. Revenues slid 1.3% year over year to $6.67 billion but surpassed our estimate of $6.63 billion. However, MetLife , the U.S. life insurer behemoth, reported disappointing earnings of 62 cents per share, lagging the Zacks Consensus Estimate of $1.47 and declining 62% from the year-ago earnings. However, revenues rose 0.3% year over year to $17.97 billion and were well ahead of our estimate of $17.47 billion. On the other hand, PRU , the second-largest U.S. life insurer, also missed our earnings estimate by three cents improved 9.1% year over year. Revenues declined 5.6% year over year to $11.1 billion but were on par with our estimate. The largest commercial insurer in the U.S. and Canada, AIG dampened investor’s mood with a huge earnings miss of 49.5% and year-over year decline of 56%. However, revenues of $13.16 billion came above our estimate of $13.06 billion. ETFs in Focus Despite unsatisfactory earnings, insurance ETFs have moved up from a one-month look buoyed up by speculations of an interest rate hike. This is because the sector is a clear beneficiary of a rising interest rate environment. Investors looking to gain exposure to this corner of the market segment in a diversified way may consider the following ETFs. SPDR S&P Insurance ETF (NYSEARCA: KIE ) This fund follows the S&P Insurance Select Industry Index and offers an equal weight exposure to 51 stocks, suggesting no concentration risk. None of the securities holds more than 2.28% of total assets. More than one-third of the portfolio is allocated to the property and casualty insurance sector while life & health insurance accounts for another one-fourth share. The ETF has managed $625 million in its asset base and trades in a moderate average daily volume of over 107,000 shares. The product has an expense ratio of 0.35% and gained nearly 4.6 over the past one month. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. iShares U.S. Insurance ETF (NYSEARCA: IAK ) With AUM of $130.9 million, this product tracks the Dow Jones U.S. Select Insurance Index and charges 43 bps in annual fees. Volume is light, trading in roughly 29,000 shares per day. In total, the fund holds 63 securities in its basket with the largest allocation going to American International at 13.6%, closely followed by Metlife at 9.5%. Other firms hold less than 6.5% of assets. For an industry look, property & casualty insurance accounts for 42.2% share while life & health insurance and multiline insurance round off the top three with double-digit exposure each. IAK is up 6.5% from a one-month look and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. PowerShares KBW Insurance Portfolio ETF (NYSEARCA: KBWI ) This fund tracks the KBW Nasdaq Insurance Index and holds 23 securities in its basket. Each firm holds less than 9% share each with TRV, PRU and MET occupying the top three spots. While insurance makes up for 95% of the portfolio, consumer finance and banks take the remainder. The product has amassed about $14.4 million in AUM while volume is paltry at about 1,400 shares. The ETF charges an annual fee of 35 bps and added 6.5% in the trailing one-month period. It has a Zacks ETF Rank of 3 with a High risk outlook. Link to the original post on Zacks.com Scalper1 News
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