logo  
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

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

By  +Follow December 9, 2013 1:47PM
Share:
Tickers Mentioned:

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.


Signup for our daily newsletter and get our best articles emailed right to you!

Results for xlf
IH News Desk
29 Jan 15 20:37:11
$AMAT Recent News Updated Thursday, January 29, 2015 11:11:45 PM $ERFB $FEYE $XLF $XLI http://t.co/ARCJpotY2P
Steve Wakelin
29 Jan 15 19:20:49
RT @RedDogT3: Daily Recap: Video recap and look ahead. $spy $spx $qqq $amzn $fb $aapl $googl $xlf $gld $iwm $ibb $twtr $baba http://t.co/e…
jay rice
29 Jan 15 18:30:44
RT @RedDogT3: Daily Recap: Video recap and look ahead. $spy $spx $qqq $amzn $fb $aapl $googl $xlf $gld $iwm $ibb $twtr $baba http://t.co/e…
Jeff Quiggle
29 Jan 15 18:14:51
10-Sector > $XLU $XLV $XLP $ITB $XLY $XLI $XLB $XLK $XLE $XLF Yesterday > $XLU $XLV $XLP $ITB $XLY $XLB $XLI $XLK $XLE $XLF
Jeff Quiggle
29 Jan 15 18:14:50
10-Sector: strongest #utilities $XLU weakest #financials $XLF strongest today #home-construction $ITB weakest today #energy $XLE
JOSH
29 Jan 15 18:07:25
RT @RedDogT3: Daily Recap: Video recap and look ahead. $spy $spx $qqq $amzn $fb $aapl $googl $xlf $gld $iwm $ibb $twtr $baba http://t.co/e…
Mike Zaccardi, CMT
29 Jan 15 17:29:55
$XLU $XLV $XLP only sector gainers YTD with $SPY -1.7%. $XLF $XLE sharp underperformers http://t.co/8A3xkIcax8
Langan Stocks
29 Jan 15 17:20:05
$XLF Company Info Updated Thursday, January 29, 2015 8:03:35 PM $RAX $CVX $SQQQ $IVV http://t.co/AnRMsjx0Fs
Stephen s
29 Jan 15 17:11:20
RT @IHNewsDesk: $MYEC Stock Message Board Updated Thursday, January 29, 2015 6:11:36 PM $AAPL $RSP $UNH $XLF http://t.co/ifUbzAeaZI
Matt K
29 Jan 15 17:04:47
RT @RedDogT3: Daily Recap: Video recap and look ahead. $spy $spx $qqq $amzn $fb $aapl $googl $xlf $gld $iwm $ibb $twtr $baba http://t.co/e…
James DiPlata
29 Jan 15 17:00:38
RT @RedDogT3: Daily Recap: Video recap and look ahead. $spy $spx $qqq $amzn $fb $aapl $googl $xlf $gld $iwm $ibb $twtr $baba http://t.co/e…
Scott Redler
29 Jan 15 16:56:37
Daily Recap: Video recap and look ahead. $spy $spx $qqq $amzn $fb $aapl $googl $xlf $gld $iwm $ibb $twtr $baba http://t.co/ehO8uuE3nP
PolgarStocks
29 Jan 15 16:34:16
$SVXY Opinions Updated Thursday, January 29, 2015 7:07:40 PM $EWY $XLF $UGAZ $EWZ http://t.co/lBqI9a1m6z
Ben Silverberg
29 Jan 15 16:27:57
Leading market sectors higher Thursday included: $SPY $QQQ $DIA $IWM $XLF $KBE $XLB $XLI $XLY $ITB $XLV $XLU $FXI $USO
royfberger
29 Jan 15 16:14:06
Barcelona! Take me back! $XLF $FXI $BAC $KO $EEM $TLT $EWT $COP $QQQ $VXX $XOP http://t.co/JUFJoVNc4s http://t.co/3Bq5MH44js
Stock Rocket
29 Jan 15 15:57:03
Today's Mid-Day Penny Stock Pick On $ETBI gained 23.27% for us! Big News: http://t.co/HCG2IUhNyd $XLF $F $FN $MSFT
GeneCala
29 Jan 15 15:33:53
Buy $RIG sell 14 calls and earn over 20% ROI How do you like them apples................................$SPY $SPX $AAPL $XLF $QQQ $IGH $WMT
IH News Desk
29 Jan 15 15:33:51
$MCD Filings Updated Thursday, January 29, 2015 6:11:36 PM $GOLD $TNA $XLF $USO http://t.co/Ka4qhxuNQe
IH News Desk
29 Jan 15 15:33:46
$MYEC Stock Message Board Updated Thursday, January 29, 2015 6:11:36 PM $AAPL $RSP $UNH $XLF http://t.co/ifUbzAeaZI
Cutlass
29 Jan 15 14:25:55
RT @Crypt0genesis: #BUY $TLT #PUT before #GDP data tomorrow. BOND sell off is going to be huge in the morning. Go huge Finacials $XLF $BAC …
IH News Desk
29 Jan 15 13:33:04
$XLI Company Info Updated Thursday, January 29, 2015 4:11:35 PM $TLT $NUGT $XLF $TSLA http://t.co/SWCHaBZcev
Max
29 Jan 15 13:01:59
$XLF at 23.39..$BAC 15.42.. $SPY 202.. not a bad day http://t.co/MI5HgTarjH
Mak Ozawa
29 Jan 15 12:57:32
this weeks vwap acting as resistence in $SPY $QQQ $SMH $XLF
Cutlass
29 Jan 15 12:52:10
RT @Crypt0genesis: http://t.co/mPntgsjkhH #FED to keep gas peddle to the floor. YELLEN TOLD DEMOCRATS NO RATE INCREASE `IMMEDIATELY': SCH…
Max
29 Jan 15 12:50:48
just want $XLF to close at 23.40.. $BAC $SPY will follow
Cryptogenesis
29 Jan 15 12:38:52
http://t.co/mPntgsjkhH #FED to keep gas peddle to the floor. YELLEN TOLD DEMOCRATS NO RATE INCREASE `IMMEDIATELY': SCHUMER BUY $SPY $XLF
Sir OG Checkmate
29 Jan 15 12:35:54
RT @KeithMcCullough: 8. $XLF tapped the low-end of the risk range (big beta cover signal for Hedgeye subs this am), 23.78 re-short (maybe)
Keith McCullough
29 Jan 15 12:33:41
8. $XLF tapped the low-end of the risk range (big beta cover signal for Hedgeye subs this am), 23.78 re-short (maybe)
PolgarStocks
29 Jan 15 12:30:13
$CVX Stock Message Board Updated Thursday, January 29, 2015 3:07:32 PM $IWC $FEYE $XLF $DBA http://t.co/Q9N1UWyoxy
Warren Neill
29 Jan 15 12:23:12
RT @HCPG: $XLF indeed told the tale-- to put it simply market isn't going to crash thru major support with banks green. (even if it is 5th…
Keith McCullough
29 Jan 15 12:10:06
Nice covers in those Financials $KRE $XLF (lower), Jedis
Hedge Fund U
29 Jan 15 12:00:40
The Cult of Central Banking > http://t.co/3FsD2uklcd $XLF $WFC $BAC
raythemoneyman
29 Jan 15 11:54:18
How to Find the Best Offshore Banks > http://t.co/54grVUkYEf $BANK $XLF
Max
29 Jan 15 11:43:58
$XLF broke the sma50 support.. damn.. next support 23.28
Max
29 Jan 15 11:39:40
$XLF holding to sma50 support.. sma/ema crossover.. anything can happen here in next couple of minutes http://t.co/qzPGLz1HcV
Max
29 Jan 15 11:37:40
$XLF hope it dont break sma20.. sma50 is a backup support.. http://t.co/kwbCyLPOiu
1 TRADER
29 Jan 15 11:32:20
RT @TraderInPlay: $SPY, $DIA to new session highs here with $ES_F @ 2009.25 +17.75 led by financials- $XLF $KBE
Briefing Trader
29 Jan 15 11:31:55
$SPY, $DIA to new session highs here with $ES_F @ 2009.25 +17.75 led by financials- $XLF $KBE
Max
29 Jan 15 11:26:24
$XLF nhod :)
Max
29 Jan 15 11:23:33
$XLF there u go.. looking good here http://t.co/5hom1x2PGB
HCPG
29 Jan 15 11:22:10
$XLF indeed told the tale-- to put it simply market isn't going to crash thru major support with banks green. (even if it is 5th test)
Max
29 Jan 15 11:21:38
$XLF if it break sma50 here, i will sell my feb20 calls.. hope it goes up on sma/ema crossover.. http://t.co/5VtXqwGsX4
Cryptogenesis
29 Jan 15 11:21:36
#BUY $TLT #PUT before #GDP data tomorrow. BOND sell off is going to be huge in the morning. Go huge Finacials $XLF $BAC $WFC $JPM $GS $MS
Investors Hangout
29 Jan 15 10:24:35
DennyT: XLF Major Holders $XLF $ITB $XIV $UUP $DGAZ Buy http://t.co/oNs1R61h1S
Investors Hangout
29 Jan 15 10:24:35
DennyT: XLF Major Holders $XLF $ITB $XIV $UUP $DGAZ Buy http://t.co/HHYCLiwwQs
Jack Damn
29 Jan 15 10:13:39
Short signal on $XLF, but I'm not sure it's worth carrying the dividends with that (R/R wise). Hmm...
DennyT
29 Jan 15 10:08:56
XLF Major Holders $XLF $ITB $XIV $UUP $DGAZ Buy or Sell Opinion,Candlesticks,Stock,Recent Headlines,alot of ta http://t.co/u9O8wrfpnH
iHangout
29 Jan 15 10:04:41
danrocks: The Launch Pad: $AMZN Buzz $XLF $IVV $ITB $XLI $CSCO http://t.co/gcKmiBUf0q
Investors Hangout
29 Jan 15 10:03:12
danrocks: $AMZN Buzz $XLF $IVV $ITB $XLI $CSCO http://t.co/VxjDaichBQ
Investors Hangout
29 Jan 15 10:03:10
danrocks: $AMZN Buzz $XLF $IVV $ITB $XLI $CSCO http://t.co/z7iWRtegf6
				
				
By  +Follow December 9, 2013 1:47PM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.