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Sunday, May 3, 2009

New Mortgage ETF Buys Stocks, Not Bonds

Anticipating a return in U.S. mortgage markets, State Street Global Advisors launched Thursday an exchange-traded fund focusing on companies involved in that corner of the market.

The SPDR KBW Mortgage Finance ETF (KME) takes a different approach than other financial-focused funds on the market. It holds banks dominated with mortgage loans on their books as well as related service providers. The biggest of those names in the fund's index heading into the launch were Hudson City Bancorp (HCBK), New York Community Bancorp (NYB) and NewAlliance Bancshares (NAL).

But the new ETF also includes a healthy dose of title insurers and claims managers such as Fidelity National and Lender Processing.

If that isn't diversified enough, home builders also are well-represented in the index with stocks from D.R. Horton (DHI), Centex (CTX) and Lennar (LEN), to name just a few.

The ETF, which comes with an expense ratio of 0.35%, uses a benchmark created by investment banker and asset manager Keefe, Bruyette & Woods. The new ETF joins four other SPDRs using KBW indexes to slice financials into different subsectors.


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