The PowerShares KBW Premium Yield Equity REIT Portfolio (NYSE: KBWY) is based on the KBW Premium Yield Equity REIT Index. The Fund will normally invest at least 90% of its total assets in securities that comprise the Underlying Index. The Underlying Index is constructed by KBW using a dividend yield weighted methodology that seeks to reflect the performance of approximately 24 to 40 small- and mid-cap equity REITs in the United States.

The PowerShares KBW High Dividend Yield Financial Portfolio (NYSE: KBWD) is based on the KBW Financial Sector Dividend Yield Index and is constructed by KBW using a dividend yield weighted methodology that reflects the performance of approximately 24 to 40 publicly listed financial companies that are principally engaged in the business of providing financial services and products.  Those sectors are banking, insurance and diversified financial services in the United States. The Index may also include securities of business development companies and equity and mortgage REITs.

The PowerShares KBW International Financial Portfolio (NYSE: KBWX) is based on the KBW Global ex-U.S. Financial Sector Index and is comprised of American Depository Receipts (ADRs). This index is a modified market capitalization weighted index that tracks the performance of approximately 60 non-U.S. financial companies that are principally engaged in the business of providing financial services and products, including banking, insurance and diversified financial services.

The PowerShares KBW Property & Casualty Insurance Portfolio (NYSE: KBWP) is based on the KBW Property & Casualty Index and is a modified market capitalization weighted index that seeks to reflect the performance of approximately 24 property and casualty insurance companies.

JON C. OGG

According to a survey published in the November issue of Bloomberg Markets magazine, Goldman Sachs Group Inc. (NYSE: GS) analysts made 30 accurate calls on the 79 financial stocks they followed between January 2008 to July 2010.   Second place winner Keefe, Bruyette & Woods Inc. made 27 correct calls on 78 stocks.   By Bloomberg’s reckoning,  Goldman got it right 38 percent of the time while KBW’s accuracy rate was 35 percent.  By comparison, Texas Rangers slugger Josh Hamilton had a batting average of .359, meaning he got a hit during 36 percent of his at bats.

Granted, picking financial stocks may be as difficult at times as hitting a baseball thrown at more than 90 miles per hour from a major league pitcher.  During the past few years, huge changes have come to the financial services sector.  Few people would have imagined before the economic meltdown that legendary Wall Street firms such as Lehman Brothers would implode one day or the government would become a large — albeit temporary — shareholder in many titans of finance. The same unpredictability can be found in baseball where the pre-season predictions of many experts are notoriously inaccurate.

Baseball players and Wall Street analysts are rewarded handsomely for their work though obviously the athletes do better.  Their performance can be scrutinized in an infinite number of ways.  In theory, that keeps them honest.  A poorly performing major leaguer gets benched or shipped down to the minors.   Analysts who blow a call on a stock get chewed out by their clients and may wind up getting fired.  Little wonder that analysts change jobs about as often as a journeyman baseball player.

What gets lost in the media hoopla surrounding analysts’ stock ratings is how little sophisticated investors care about them.   These money managers consider whether an analyst thinks a stock is a “buy,” “sell” or “hold”  to be irrelevant.  The reasoning behind a rating may interest them some, but even that is not a given since many investment funds pride themselves on doing their own research.

“It’s unusual to see original thinking in these reports, even though that’s what’s most valuable to me,”  says  Jason Brady, a managing director at Thornburg Investment Management, in an interview with the magazine. “The ones who are different aren’t always right, but they’re frequently the most interesting and thoughtful.”

Goldman and KBW deserve kudos for making the correct call more than others during a time of unprecedented upheaval in the financial services sector.  Investors, though, need to remember that just because an analyst hit a “home run” once is no guarantee that it will happen again. Many people fail to realize that the adage that baseball is a game of failure also applies to the stock market.

–Jonathan Berr

The ETFs seek to provide 200% or -100% of the return of the KBW Regional Banking Index for a single day, before fees and expenses.  The KBW Regional Banking Index, the most widely used benchmark for U.S. regional banking stocks, was created and is managed by KBW.

Before today, those seeking leveraged exposure to inverse and leveraged ETFs have usually relied on the crazy triple-leverage ETFs from Direxion: the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) hae seen an increase in volume of late.

There is also the Ultra Financials ProShares (NYSE: UYG) is meant to track the daily move of the twice the daily performance of the Dow Jones U.S. Financials index; and the Short Financials ProShares (NYSE: SEF)  is mean to track the daily investment results of the inverse of the daily performance of the Dow Jones U.S. Financials index.  Now you have leverage, and you have it in regional banks.

There is more and more competition on the leverage and inverse ETF front.  Whether these are winners or losers compared to peers and competitors, that will be seen through time.  As with all leverage and inverse ETF or ETN products, caveat emptor!  These are all prone to index tracking errors.

JON C. OGG

• Citigroup (C) Cut To Underperform From Neutral at Merrill Lynch.
• General Dynamics (GD) Cut to Neutral at JPMorgan.
• Goldman Sachs (GS) Cut to Underperform from Buy at Merrill Lynch.
• Jefferies (JEF) Cut to Sell at B of A.
• Keefe Bruyette & Woods (KBW) Cut to Sell at B of A.
• Lehman (LEH) Cut to Underperform from Hold at Merrill Lynch.
• LSI Industries (LYTS) Cut to Underperform at Baird.
• McDermott (MDR) Cut to Hold at Citigroup.
• Morgan Stanley (MS) Cut to Neutral from Buy at Merrill Lynch.
• National City (NCC) Cut to Neutral from Buy at Ladenburg Thalmann.
• Shaw Group (SGR) Cut to Sell at Citigroup.

Obviously there are a few calls thrown in here that aren’t brokerage firms or investment banking firms, but the brokers are back to killing each other again for the third day this week.

Jon C. Ogg
August 14, 2008

• Constellation Energy (NYSE: CEG) Downgraded to Underperform at Jefferies.
• Fidelity National (NYSE: FIS) Cut to Perform at Oppenheimer.
• Fiserv (NASDAQ: FISV) Cut to Perform at Oppenheimer.
• Genentech (NYSE: DNA) Raised to Overweight at Lehman.
• KBW (NYSE: KBW) Cut to Market Perform at FBR.
• Nike (NYSE: NKE) Cut to Neutral at HSBC.
• Pearson plc (NYSE: PSO) Cut to Sell at Deutsche Bank.
• Satyam Computer Services (NYSE: SAY) Cut to Equal Weight at Morgan Stanley; Cut to Underperform at Credit Suisse.
• Sherwin Williams (NYSE: SHW) Cut to Sell at Goldman Sachs.
• Sierra Wireless (NASDAQ: SWIR) Target cut to $20 from $25 at CIBC.
• Stanley Works (NYSE: SWK) Cut to Hold at Deutsche Bank.
• Werner Enterprises (NASDAQ: WERN) Cut to Sell at UBS.
• WIPRO (NYSE: WIT) Cut to Underperform at Credit Suisse.

Jon C. Ogg
July 21, 2008

• American International Group (NYSE: AIG) Raised to Buy at Banc of America.
• Cintas Corp. (NASDAQ: CTAS) Raised to Equal Weight at Morgan Stanley.
• KBW (NYSE: KBW) Cut to Market Perform at FBR.
• NetEase (NASDAQ: NTES) Raised to Outperform at Credit Suisse.
• Nike (NYSE: NKE) Cut to Neutral at HSBC.
• Satyam Computer Services (NYSE: SAY) Cut to Equal Weight at Morgan Stanley; Cut to Underperform at Credit Suisse.
• Sherwin Williams (NYSE: SHW) Cut to Sell at Goldman Sachs.
• Stanley Works (NYSE: SWK) Cut to Hold at Deutsche Bank.
• Teva Pharmaceutical Ind. (NASDAQ: TEVA) Raised to Buy at Deutsche bank.
• Whole Foods Markets (NASDAQ: WFMI) Raised to Equal Weight at Morgan Stanley.

Jon C. Ogg
July 21, 2008

Jon C. Ogg
April 3, 2008

PROCESSING: Fidelity National Information Services (FIS); FairIsaac (FIC); ChoicePoint (CPS).  On a side note, Total SystemsSolutions (TSS) is Jim Cramer’s pick in the sub-sector. RATINGS: Moody’s (MCO).  INSURANCE BROKERS (P&C): Marsh and McClennan (MMC), AON Corp. (AOC).  INSURANCE: AFLAC (AFL), Conseco (CNO), and American Safety (ASI).  MONEY MANAGEMENT: Legg Mason (LM), Janus Capital (JNS), Waddell & Reed (WDR), Federated Investors (FII), National Financial (NFP).  LOANS, STUDENT LOAN: Nelnet (NNI).

We have our own list of targets in this financial services sector for our newsletter subscribers.  Some of these companies make sense, and there are many others elsewhere in overlapping segments in financial services that may actually make more sense.

Jon C. Ogg
May 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.