Under The Hood: An Unheard of Bank ETF

Additionally, AXFN has not rallied solely on the back of the most controversial international banking names. Yes, HSBC and Spain’s Banco Santander, S.A. (NYSE:SAN), are top-10 holdings, but so are three Canadian banks. Canadian banks have long been viewed as steadier, more conservative alternatives to their U.S. peers.

Australian banks, a group that is also further down the controversy totem pole than U.S. and European equivalents, account for 11.1 percent of AXFN’s weight.

In terms of liquidity, AXFN is not as off-putting as some might think. Yes, the ETF’s average daily volume is paltry, but what is more important than an ETF’s overall liquidity is the volume of its underlying holdings. Of the five of ACWN’s top-10 holdings that trade in the U.S., the one with lowest average daily volume is The Bank of Nova Scotia (TSE:BNS) with average daily turnover of almost 383,000 shares.

AXFN also features an almost seven percent weight to Chinese banks, many of the same that are found in the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), an ETF that has never been assailed for lack of liquidity. Additionally, nearly all of AXFN’s holdings that do not trade in the U.S. are heavily traded in their home markets, so investors are not getting involved with a slew of obscure, thinly traded names with this fund.

The bottom line with AXFN is two-fold. First, the slack volume and low AUM is clearly keeping investors at bay and a derivative of that is a bid/ask spread that can often be wider than most folks will want to be involved with. However, and this is the second point, if bank stocks offer a 2012 sequel in 2013, AXFN could easily be a bank ETF leader. It is just a matter of how many investors actually realize it.

This article was originally written by The ETF Professor, and posted on Benzinga.