Explosion of M&A activity could help support financial sector ETFs


After the coronavirus pandemic suspended many companies for a year, companies launched an unprecedented wave of transactions, strengthening banks and exchange-traded funds linked to the financial sector.

According to data from Dealogic, in the first eight months of 2021, companies announced mergers and acquisitions worth more than $ 1.8 trillion in the United States and more than $ 3.6 trillion in the world, the highest numbers at this point of any year since at least 1995, the the Wall Street newspaper reports.

The sudden activity of mergers and acquisitions has helped to add new fees for the banks that support the transactions. For example, Goldman Sachs Group Inc., Wall Street’s premier trading store, collected more than $ 1 billion in fees for each of the past three quarters. The bank only imposed such high fees once in the decade before the pandemic.

Going forward, observers predict that advisory revenues could continue to support banks for the rest of the year, as many of the year’s biggest deals are still on hold. Bankers also expect things to get even busier as the summer break ends and policymakers return to work. There are many factors supporting the outlook, including a positive economic outlook, high levels of corporate liquidity, thriving private equity firms, and target-hunting SPACs.

“All the ideas that had filtered through the minds of board members and CEOs but lacked catalyst have now returned to the top of the agenda,” Dan Dees, co-head of investment banking at Goldman.

As investors look to bank stocks, some may look to financial sector-linked ETFs to profit from the rebound, including the SPDR Financial Sector (NYSEArca: XLF), ETF Fidelity MSCI Financials (NYSEArca: FNCL), IShares US Financials ETF (NYSEArca: IYF), and Vanguard Financials ETF (NYSEArca: VFH). Broader financial sector ETFs include strong leanings towards reputable banks like Goldman Sachs, but this broad sector also includes other non-pure banking games in the financial sector.

For more information on the finance industry, visit our finance category.

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