Barclays: Invest in ETF Growth

Barclays (BCS) is a London based bank with a global footprint and multiple business units including investment banking, retail banking, credit card, mortgage lending and wealth management. It is the wealth management division that attracted me to Barclays as it fits in well with the ETF growth theory I considered for WisdomTree (WSDT). The iShares family of ETFs offered by Barclays, has over $244 billion in assets under management and Barclays Global Investors manages 65 of the world’s top 100 largest pension plans. Barclays is growing its assets under management both by launching new ETFs as well as acquiring competitors such as Indexchange Investment, which it agreed to acquire for 240 million euros in November.

Barclays also provides international diversification and a hedge against the falling dollar, which is now at a 14 year low against the pound sterling. Barclays has business operations in 37 countries outside the United Kingdom and a strong presence in Africa through acquisitions. There is speculation that Barclays itself might get acquired by Bank of America (BAC). Bank of America currently holds 9.2% of U.S deposits and has been attempting to expand without breaching the 10% regulatory ceiling.

So why would I want to invest in Barclays instead of Bank of America or Citigroup (C)? Apart from international diversification, the dollar hedge and the ETF growth theory, Barclays also sports better revenue and earnings growth than either Bank of America or Citigroup. It is astounding to see a company with a market cap of almost $88 billion exhibit quarterly revenue growth of 35% and earnings growth of 45.1%. Barclays does not face the mortgage default and weak housing risks that Bank of America is facing as the British housing and mortgage industries are very strong right now. But that could change overnight.

The stock has a decent dividend yield of 3.8% and an attractive valuation with a current P/E of 12.57 and a forward P/E of 9.94. Barclays may prove to be a better and possibly safer alternative to either State Street (STT) or WisdomTree as a play on the burgeoning growth in ETFs.

The Good:

* Barclays is a globally diversified bank with strong revenue and earnings growth.
* Barclays through its iShares family of ETFs is the 800 pound gorilla amongst ETF providers.
* Barclays sports an attractive valuation with a forward P/E of just 9.94 and P/S of 2.28.

The Bad:

* Barclays profit margin of 18.34% is well below the margins of either Citigroup or Bank of America.
* Barclays could be hit by a slowdown in the British housing market.
* The dollar may rebound from its low, leading to a drop in the price of Barclays ADR shares.

BCS 1-yr chart