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Opening the Book on the SPDR Financial Select Sector ETF (XLF)

By  +Follow December 9, 2013 1:47PM
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Generally speaking, when the stock market is doing well, the big banks are among the winners. Strong financial times tend to mean there’s more money around to fund all that growth, and that tends to benefit those actors profiting from moving that money around. What’s more, a growing stock market means more money in the hands of the sorts of people interesting in putting that money to work. Also good for investments banks.

So it should come as no shock that the primary ETF tracking the financial sector, the SPDR Financial Select Sector ETF ($XLF), is among the ETFs that are most actively traded and beating the S&P 500 in 2013, up 30.96 percent to the S&P’s 26.81 percent. In fact, it’s not out of the question to consider the XLF as a slightly leveraged version of the SPDR S&P 500 ETF ($SPY) given that the financial sector’s fortunes tend to be so closely tied to the market as a whole (though, it’s not designed that way and one could certainly get into trouble treating it as such).

So what’s in the XLF, then? Given that traders and investors are moving it around with an average daily volume that exceed 35 million shares, it’s worth taking a closer look at this ETF, what’s in it, and what major factors are most likely to make it move.

Times are Good for XLF, Financial Stocks

It’s been a solid year for financial stocks. The financial sector derives the majority of its revenues from lending money, trading financial instruments, and acting as a broker to others looking to trade financial instruments. And two factors have been working in confluence to facilitate all of these activities: a growing economy and low interest rates.

Low interest rates help people borrow and lend more money, increasing the sort of activity that the financial sector banks on (pun intended) for its regular cash flow. A growing economy also means an environment where people are more comfortable borrowing.

And the two factors together is a situation that’s not entirely a common one. Typically speaking, the Fed will raise interest rates in a growing economy/bull market to control inflation. At the moment, though, interests rates are at zero, the Fed continues to effectively print money through its stimulus programs, and inflation continues to appear to remain in check. It’s a situation that clearly can’t last forever, but one that’s made for a particularly positive environment for the financial sector over the last year.

XLF Holdings

Like most SPDR ETFs, XLF is connected to an S&P index, in this case the S&P Financial Select Sector Index ($IXM). The index has 82 components, all members of the S&P 500 operating in the financial sector. Quickly parsing over the numbers, XLF has actually missed its target index by a half percent in 2013, a big enough difference to make note of (IXM is up 30.43 percent in 2013 to XLF’s 30.96 percent). Not that most investors will be griping much given that A) they’re both up over over 30 percent and B) XLF was on the right side of that difference.

XLF’s holdings are cap-weighted and generally reflect the same ownership ratios of IXM, making them largely academic. However, for those interested, the breakdown is pretty much what you would expect, with the big four banks making up four of the top five holdings, each with more than 6 percent of the portfolio: Wells Fargo (WFC) at 8.18 percent of holdings, JP Morgan & Chase (JPM) at 8.1 percent, Bank of America (BAC) with 6.41 percent, and Citigroup (C) with 6.01 percent. Rounding out the top five is Berkshire Hathaway ($BRK.A) with 8.06 percent of the portfolio.

There’s a big drop off after those top five holdings, which generally reflects the nature of the sector’s major players. American Express ($AXP) is the fund’s sixth largest holding with just 3.06 percent of the holdings. The biggest investment-only banks have smaller holdings, with Goldman Sachs (GS) at 2.68 percent of holdings and Morgan Stanley (MS) at 1.63 percent.

XLF’s Prospects in 2014?

No one can tell the future, obviously, but it seems a fairly safe bet that XLF will at least fail to have the sort of banner year in 2014 that it has in 2013. For starters, the strong run for equities as a whole would seem to be an unsustainable rate of growth, let alone the financial sector. It also seems a pretty safe bet that the Fed will decide to start tapering QE III and raising interest rates in the next few months (though, getting a precise answer to the question of when will probably remain a focus of everyone’s interest until it happens).

With these downward pressures potentially coming in the approaching months, it seems difficult to believe that XLF will be able to match the massive 30 percent return its managed in 2013. What’s more, some technical patterns could also indicate a sell-off is coming. A look at the stock chart would seem to show a rising wedge developing over the summer and steepening sharply in early October. This pattern would seem to also point towards a potential downward breakout coming early next year.

Of course, if the equities market defies its bears and continues with another year of rapid growth, it’s not hard to imagine that any downturn based on the taper would be temporary and XLF would continue growing. As always, there’s no real way of knowing for sure until it happens.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for xlf
Financial Iceberg
21 Apr 15 04:34:19
SP500 Financials HVol: Rising HVol ? $SPY, $SPX, $ES_F, $XLF #Trading #Emini #ES_F #SP500 #xlf http://t.co/QpN6lkcFDA
Langan Stocks
21 Apr 15 03:56:24
$FSLR Short Sales Updated Tuesday, April 21, 2015 06:03:25 AM $XLF $EWH $VNQ $VXX http://t.co/BYNcumECz9
IH News Desk
21 Apr 15 03:41:43
$IMSC Investor Opinions Updated Tuesday, April 21, 2015 06:11:27 AM $GERN $XLF $DXJ $AA http://t.co/2MYOY4xDdX
Langan Stocks
21 Apr 15 02:55:12
$GPRO Stock Message Board Updated Tuesday, April 21, 2015 05:03:24 AM $HAS $RYT $AMPE $XLF http://t.co/0itnkhqquW
IH News Desk
21 Apr 15 01:40:39
$EWY Company Info Updated Tuesday, April 21, 2015 04:11:29 AM $LULU $XLF $YINN $ECIGD http://t.co/kYnWspXLfg
PolgarStocks
21 Apr 15 00:53:20
$XLU Last Price Updated Tuesday, April 21, 2015 03:07:26 AM $UUP $XLF $NBIX $VIMC http://t.co/yMVK2Rfj1O
Rosner Stocks
20 Apr 15 22:51:08
$EWY Investor Opinions Updated Monday, April 20, 2015 12:59:23 PM $FWDG $XLF $GERN $CSCO http://t.co/QhPCElaV4k
PolgarStocks
20 Apr 15 22:51:06
$BIIB Company Info Updated Tuesday, April 21, 2015 01:07:25 AM $EWG $SLV $XLF $REVO http://t.co/47p0jJGasx
Rosner Stocks
20 Apr 15 22:51:06
$SCTY Opinions Updated Monday, April 20, 2015 12:59:23 PM $VEU $DXJ $XLF $GPRO http://t.co/yC4qNiwvU2
PolgarStocks
20 Apr 15 22:51:05
$EFA Opinions Updated Tuesday, April 21, 2015 01:07:25 AM $CSCO $SCTY $XLF $UDN http://t.co/NM10xQRtEO
IH News Desk
20 Apr 15 22:35:37
$AA Reviews Updated Tuesday, April 21, 2015 01:11:27 AM $LUV $NUGT $AMPE $XLF http://t.co/L4iK33fz6O
royfberger
20 Apr 15 22:02:09
Barcelona! Take me back! $XLF $FXI $BAC $KO $EEM $TLT $EWT $COP $QQQ $VXX $XOP http://t.co/JUFJoVvAWo http://t.co/bzQmL3gVyM
Rosner Stocks
20 Apr 15 21:50:07
$FXI Company Info Updated Monday, April 20, 2015 11:59:23 PM $XLF $USO $FWDG $HBI http://t.co/hClsGzKvLU
IH News Desk
20 Apr 15 21:35:16
$XLF Short Sales Updated Monday, April 20, 2015 12:11:29 PM $COST $VSLR $XOM $GM http://t.co/ANkQHm0io0
Penny Stockington
20 Apr 15 21:08:25
Members Saw Our Penny Stock Picks Gain 1600% In 4 Months! Subscribe Here For New Picks: http://t.co/2dBXHWiAWG $XLF $F $FN $MSFT
Stockaholics
20 Apr 15 20:57:53
Our Penny Stock Alert On $OSLH Gained 97% In 3 Days! Big News: http://t.co/VsDv7ywE5E $XLF $F $FN $MSFT
Bradley
20 Apr 15 20:34:08
I love this trading girl! $XLF $FXI $BAC $KO $EEM $TLT $EWT $COP $QQQ $VXX $XOP http://t.co/l9JkTCtpHR http://t.co/7zpbALQK33
Stock Dawgzz
20 Apr 15 20:29:31
$OSLH Became One Of The Most Powerful Penny Stocks Last Week! Special Update: http://t.co/rQZs5CWxta $XLF $F $FN $MSFT
Stock Rocket
20 Apr 15 20:03:05
Our Stock Pick On $THCZ Is Up 481.54% From Our Initial Release! Major News: http://t.co/bLXWVUeOrx $XLF $F $FN $MSFT
PolgarStocks
20 Apr 15 19:48:10
$UNH Stock Forum Updated Monday, April 20, 2015 10:07:24 PM $FNMA $XLF $PZOO $SCTY http://t.co/VOy1RiA0yG
Rosner Stocks
20 Apr 15 19:48:09
$DXJ Stock Forum Updated Monday, April 20, 2015 9:59:22 PM $EWH $XLF $XLE $BLTA http://t.co/y4Er1HcfI3
Rosner Stocks
20 Apr 15 19:48:07
$VOIS Reviews Updated Monday, April 20, 2015 9:59:22 PM $LVLT $UPRO $XLF $VSLR http://t.co/VNWGqEe6NU
Николай Фадеев
20 Apr 15 19:31:36
Lean times for Main Street banks $XLF, $FAS, $FAZ, $UYG, $KRE, $VFH, $KBE, &#03.. http://t.co/V3f4WCMHdQ
_JamisonG_
20 Apr 15 19:09:12
@_JamisonG_ $XLF $SPY http://t.co/WEny4FE56l
BostonBound
20 Apr 15 18:53:50
@hedgefundclone @Genworth it outperforms $xlf on the day xlf is trending .. The hedgemind website doesn't show any aggressive holders yet
PennyStock Zone
20 Apr 15 18:50:21
Connor Bruggeman SchoolTrader made $300,000 in 1 yr while in high school http://t.co/w3kYAgQOUj $REGN $MSFT $BIIB $CELG $XLF $UNH
GruTraderMX
20 Apr 15 18:39:17
RT @patonet: Ojo que el Sector Financiero $XLF no participó del Rally de Hoy. Martillo Invertido. No pudo con su sma50d mmm... http://t.co…
PatoNet 
20 Apr 15 18:33:07
Ojo que el Sector Financiero $XLF no participó del Rally de Hoy. Martillo Invertido. No pudo con su sma50d mmm... http://t.co/8H3H34IqWD
StockenheimerSchmidt
20 Apr 15 18:19:09
Platinum Members Saw Our Stock Alerts Gain Over 1600% In 4 Months! Subscribe Here: http://t.co/vy1bjuKyNv $XLF $F $FN $MSFT
Nicholas Olesen CFP©
20 Apr 15 18:17:22
Sometimes the “crystal ball” works… This month’s commentary is pretty spot on so far http://t.co/00CrNJL0hz $spy $xlk $xlf $xle $xly
PolgarStocks
20 Apr 15 17:39:53
$XLU Short Sales Updated Monday, April 20, 2015 8:07:23 PM $ACAD $XLF $NVAX $ZIOP http://t.co/Wy57GGOSt2
dailystockplays.com
20 Apr 15 15:55:10
NR4 ID http://t.co/YgZeHxj8b6 $XLF $SLB $CLF $OIH $NBR $SPLS $FITB $BRCM $CTRX $HZNP $CTSH $MDR $LPI $ARIA $BRCD $HCP $MHR $BBT
Declan Fallon
20 Apr 15 15:29:44
#sectorbreadth [80] $XLE > [50] $XLK > $XLU > $XLP > [40] $XLV > $XLB > $XLF > $XLI > [30] $XLY. $SPX bullishness at 52%
Top ETF Funds
20 Apr 15 13:21:55
Financial fund draws bullish trade.. http://t.co/vIIjWnZ9qe $XLF #ETF #ETFs #Stocks
WLST.com
20 Apr 15 13:21:52
Wells Fargo Increases Its Dividends in 1Q 2015 $XLF #Stocks http://t.co/S6DviI426U http://t.co/5Sj8Ucmd2O
WLST.com
20 Apr 15 13:21:44
Blackstone’s Real Estate Activity Picks Up in the First Quarter $XLF #Stocks http://t.co/S6DviI426U http://t.co/H3kk4gknbT
Top ETF Funds
20 Apr 15 13:21:38
Here’s What An Earnings Expert Is Saying About The Stock Market Right Now.. http://t.co/Fghl4X7Tpd $XLF #ETF #ETFs #Stocks
Top ETF Funds
20 Apr 15 13:21:21
Wells Fargo Increases Its Dividends in 1Q 2015.. http://t.co/o7dUZ4smaL $XLF #ETF #ETFs #Stocks
Top ETF Funds
20 Apr 15 13:21:04
Blackstone’s Real Estate Activity Picks Up in the First Quarter.. http://t.co/c9ThSBKect $XLF #ETF #ETFs #Stocks
Rob Smith
20 Apr 15 13:00:48
inside days for $FAS $XLF $XRT $IBB $TLT $OIH
PennyStock Zone
20 Apr 15 12:19:28
Connor Bruggeman SchoolTrader made $300,000 in 1 yr while in high school http://t.co/w3kYAgQOUj $REGN $MSFT $BIIB $CELG $XLF $UNH
Scott Smith
20 Apr 15 12:13:00
$DJIA $QQQ $DIA $IWM $RUT $SPY $SPX $TRAN $XLF Support (confirmed) Chart posted April 17th (Friday) http://t.co/TzPDZDIaLW
Hank Bloom
20 Apr 15 11:58:33
RT @MarkNewtonCMT: Financials meanwhile back down to lows when viewing Relative charts of $XLF/ $SPX-w/ ongoing Low Yields-Important Lvl ht…
Three Blind Mice
20 Apr 15 11:53:15
RT @robwilliamsNY: Financials still in a bear flag $XLF http://t.co/bWDRzWGYPs
J.F.C.
20 Apr 15 11:52:44
RT @robwilliamsNY: Financials still in a bear flag $XLF http://t.co/bWDRzWGYPs
Goldbug2009
20 Apr 15 11:50:15
RT @NorthmanTrader: Financials $XLF http://t.co/ZtkqrJk9u6
Jesse Felder
20 Apr 15 11:33:36
Looking through @sentimentrader's individual stock optix sentiment overbullish side dominated by banks and oils. $XLF $XLE
Van Castle
20 Apr 15 11:21:54
RT @NorthmanTrader: Financials $XLF http://t.co/ZtkqrJk9u6
Northy
20 Apr 15 11:20:39
Financials $XLF http://t.co/ZtkqrJk9u6
GreenRush2014
20 Apr 15 11:11:01
RT @WallStreeTopGun: Financials fade and they will take everything else with them. $XLF $GS $MS $BAC $JPM $C $AXP $SPY
				
				
By  +Follow December 9, 2013 1:47PM
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