Replies to post #7 on TRADING OF 9 SECTORS PROSHARES SMALL CAPS

[JLS]

Answer

PSCF is small cap and XLF is not. That would be a big difference.

The customers of small cap financial institutions are going to be small companies themselves, and are at higher risk than large companies. There is much more stability with the very large financial institutions, but they cannot be represented within PSCF simply because of their size.

Financial services, if confined to small businesses (as PCSF would be) is a fairly broad sector that is closely tied to all business activities irrespective of end product. So the performance of those financial services companies could more easily follow a general small-cap index such as RUT. In other words, whatever might perturb the performance of a small company will also be directly felt by its small bank. But in the opposite situation of a small company doing business with a big bank would be like putting a fly on a horses ass.

Small financial services companies probably can't even enter certain sub-sectors within the financials service group. They are too small to take on the risks. For instance, VISA and/or Mastercard could very easily be represented in XLF. The same would be true for large credit unions, and for large insurance companies. Credit card and insurance services tend to be too big to be represented within PSCF.

KRE is a regional banking index ETF. There shouldn't be any large national banks within KRE, so it will agree better with PSCF, but it wont agree with XLF either. Regional banks just can't get into some of the services of the larger banks because they don't have the financial resources.

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For what it's worth, small banks don't even have to follow the same regulations of the large banks.

The last time I looked at the reserve requirements of banks in general, banks below a specified size in assets were not required to hold any reserves.

That was done so that they could be more competitive in getting business from the big banks. They also go bankrupt more often, but that isn't considered a big problem by banking regulators -- because of their size, small banks can much more easily be seized by regulators and handed over to a bigger bank without making much of a dent in the receiver's balance sheet.