I believe "ETF" in this case referred not to exchange traded vehicles such as XLF, but to baskets that some of the brokers (someone like Merrill) sell which are like mutual funds, but are traded intraday, so when shares are sold they are in effect "redeemed." As such, if there are significant redemptions, the brokers must then liquidate the underlying positions to fund the redemptions. There was an article I read which discussed this, but now the link is dead.
Certainly you could see the overall pressure on the sector on Thursday, and the pressure on the banks and brokers seemed to occur in unison, but it could also have been just the overall market weakness pushing down the most visible financial stocks. The interesting thing is that the banks and brokers rebounded nicely on Friday, even while the insurers were still down, so whatever effect there was from the baskets only lasted one day.
It seems like the damage to some of the insurers might be overdone, as they will have to pay some penalties and perhaps shake up management, but they should still generate tremendous earnings in the long run. I wouldn't buy any of them until the case and its effects are better known, but there will probably be some nice trades/investments in that sector when some of the smoke clears. |
