Financials and ETFs: Should We Be Taking "This Rally" Seriously?

T. Rowe Price, one of the leading no-commission fund providers, posted its 20th straight quarterly increase in earnings. Not surprisingly, T. Rowe shares (TROW) are up as much as 10% as I type this morning.

"Invest in the company's shares, not the mutual fund." That's what a wise person once wrote years ago. And never has the advice been more prescient than when it comes to T. Rowe Price.

The company itself is up roughly 200% over the last 5 years; meanwhile, its flagship fund T. Rowe Growth Stock (PRGFX) amassed somewhere in the range of 11% annualized.

Yet the more important news came from the top brass at T. Rowe; that is, CEO Jim Kennedy explained in a telephone interview that the credit crisis is easing.

He's not the only one. The one man in history that at one time had actually beaten the S&P 500 on a risk-adjusted basis for 15 years, Bill Miller of Legg Mason Value, addressed shareholders in a letter dated 4/23/08. He wrote, "...by far the worst is behind us. I think the credit panic ended with the collapse of Bear Stearns, and credit spreads are already much improved since then. If spreads continue to come in, the write-offs at the big financials will end, and we may even have some write-ups in the second half instead of write-downs."

Okay... so this isn't the first time that big thinkers have said the worst was over. Uber-picker Jim Cramer made the same claim in early January. Clearly, he was a little early on the call. Others like billionaire Joseph Lewis had begun to acquire more shares of Bear Stearns in the summer of 2007, only to find himself out some of his fortune.

Yet there may be reasons to believe that this rally is for real. Major insurers like Travelers and Aflac beat first-quarter estimates and raised full-year forecasts. And analyst Robert Baird upgraded Zions Bancorp.

Granted, some 2/3 of banks have missed highly discounted expectations. Nevertheless, "Stearns-like" bombs have not fallen from the sky. Perhaps the worst sector is coming back to life.

How might you profit from a revival? I've been pretty straightforward as to my preference for the iShares Dow Jones Dividend Fund (DVY) and the iShares Preferred Stock Index (PFF.) (Read more on these recommendations from my previous posts.)

That said, these are hardly the most assertive choices for more aggressive believers. Brokerages have been beaten down more than nearly any financial subsector, making the iShares Broker-Dealer Index Fund (IAI) worthy of a bottom-fishing expedition.

For those who might be intrigued by diversifying financial risk globally, there's the iShares Global Financial Fund (IXG). I discussed IXG in greater detail in yesterday's post.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.