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.


Liked What You Read? Join Equities.com as a contributor and get eyeballs on your content FOR FREE!

Results for xlf
lookn4wins
22 Sep 14 10:18:06
$JNUG Parabolic SAR $JNUG Most recent stock chart and technical analysis. $RIG $TVIX $AVGO $XLF $VXX $FEYE htt http://t.co/kbIXEJdmb9
Ben Silverberg
22 Sep 14 10:15:05
Only green SPDR sector ETF is $XLB +0.2%, others $XLY -1.5% $XLP -0.1% $XLE -1.3% $XLF -0.4% $XLV -0.7% $XLI -0.9% $XLK -0.7% $XLU -0.5%
Investors Hangout
22 Sep 14 10:09:31
danrocks: $XLK Picking Up MOMO $JNK $XLF $HLF $KEY $S http://t.co/DftrGbhyog
Investors Hangout
22 Sep 14 10:09:07
danrocks: $XLK Picking Up MOMO $JNK $XLF $HLF $KEY $S http://t.co/Jh9ZeNc2YX
PennyStock Zone
22 Sep 14 10:08:23
Best day trading DVD by Fous Alerts check it out! http://t.co/HJ6WDp65fM #stocks #trading #nasdaq #nyse $XLF $HPQ $INTU $INTC $PCLN $QUNR
danrocks
22 Sep 14 09:49:56
$XLK Picking Up MOMO $JNK $XLF $HLF $KEY $S http://t.co/3zPpg38Xqv
ActiveVols
22 Sep 14 09:37:02
#LongPremium Say nothing ..... $SPY $QQQ $XLK $XLF
Aaron
22 Sep 14 09:33:36
ICYMI, new post: mirages http://t.co/0cusiuHbiV $spy $spxew $rsx $xlf $TLT
iHangout
22 Sep 14 09:32:20
http://t.co/vVojvVrNNL Emylers: The Hunt for the Next 10 Bagger: $XLF Up to date company activities and other http://t.co/lgEM4xU6cQ
Emylers
22 Sep 14 09:30:20
$XLF Up to date company activities and other important information about $XLF http://t.co/J9jIAkEjMd
TwentyOne
22 Sep 14 09:18:02
$XLF holding up relatively well so far... something to watch
Irrelevant Investor
22 Sep 14 09:07:48
Thanks RT @ETFGodfather: Cool stuff on the $XLF $XLU ratio courtesy @michaelbatnick link to his piece in ours http://t.co/Tz5eJt7ydz
dark lord donidius
22 Sep 14 09:05:49
RT @Sassy_SPY: Bad Breadth? New Highs? Futures lower? What's next? New Post $SPY $SPX $XLF $TLT http://t.co/TKkVF2qwdA
ETF Godfather
22 Sep 14 08:56:19
Cool stuff on the $XLF $XLU ratio courtesy @michaelbatnick link to his piece in ours http://t.co/7nbFfsazvc
Investors Hangout
22 Sep 14 08:35:08
clayton: $XLF 23.61 http://t.co/NC441wbmsR
Investors Hangout
22 Sep 14 08:35:08
clayton: $XLF 23.61 http://t.co/WKMizODyuN
Jake13
22 Sep 14 08:34:07
$KEY Buy or Sell? Click here to find out if $KEY is a buy hold or sell. Watching these stocks. $XRS $XLE $XLF http://t.co/OGlKvAdu9z
iHangout
22 Sep 14 08:09:15
http://t.co/Vv1sYDyeQn clayton: Estrella's Sizzling Hot Stock Plays: $XLF 23.61 http://t.co/2V8Ro8Zjiq
Stockaholics
22 Sep 14 08:07:02
SECRET Penny Stock Pick, Coming Today! Platinum Members Once Saw it Gain 81% In One Day: https://t.co/WsiOrAqT0s $XLF $F $FN $MSFT
clayton
22 Sep 14 08:04:16
$XLF 23.61 http://t.co/w2XWwA7LnO
Spread The Trend
22 Sep 14 07:59:41
Are we oversold enough yet? Are we? Are we? I see some green on my screens and $AAPL & $XLF trying to hold up now....
jacob mintz
22 Sep 14 07:59:15
$XLF holding up reasonably well today. $OIH and $XLE continue to be disasters.
XBanker Trader Guyer
22 Sep 14 07:59:08
LEGAL NOTICE: Author and/or affiliated/associated financial sponsors are long $XLF, $C, $JPM, $RDC, $NE (stock/calls) & $CHK (stock/calls).
leahanne
22 Sep 14 07:54:12
$CRR Carbo Ceramics (CRR) 69.19 -15.33 (-18.14%) $XLF $LVS $OTIV http://t.co/Vi8boWu7Pf
nixon786
22 Sep 14 07:53:41
$XLF this strong sector may give up soon.. Looks weak and vulnerable #trader890
Becky Hiu
22 Sep 14 07:50:15
$GS $BAC $C $JPM $MS $XLF banks strong!
XBanker Trader Guyer
22 Sep 14 07:49:37
$INTC #FinancialSector $GS $XLF $JPM $C trading firm, $OSX not impressed w/ #DresserRand deal, $LEE trades like its piece of shit CEO. #Suck
Cornholio
22 Sep 14 07:14:45
@KymLang $XLF held up quite well this morning. Even $C remained green from the open. Guess that's kind of a tell.
Market Int Center
22 Sep 14 07:12:02
Financial Select Sector SPDR $XLF Trading Near $23.42 Support Level ( http://t.co/0SL4SZPRpd )
Barry Scott
22 Sep 14 06:59:38
Barron's pop - quick 25% gain $BAC weekly $17 calls if you got .20 & sold .25, 6,226x $XLF
lookn4wins
22 Sep 14 06:50:26
$JNJ Parabolic SAR $JNJ Most recent stock chart and technical analysis. $HD $HPQ $TASR $XLF $AUY $CRR http://s http://t.co/mQFkzxQw3w
The Turtle Follower
22 Sep 14 06:33:31
RT @edwardrooster: $AKAM $AMBA $BAC $C $DIA $DRC $GD $GS $HD $HIG $MS $MSFT $NOK $REGN $SWK $TRP $UUP $X $XLF $XLK $ZTS http://t.co/YG6cyg4…
edwardrooster
22 Sep 14 06:32:04
$AKAM $AMBA $BAC $C $DIA $DRC $GD $GS $HD $HIG $MS $MSFT $NOK $REGN $SWK $TRP $UUP $X $XLF $XLK $ZTS http://t.co/YG6cyg4dvH this wk's list
MoneyShow
22 Sep 14 06:02:40
$XLV $IYT $XLF $XLE $XLP How is your ETF doing this year? http://t.co/BokOLlH8S0 http://t.co/MwFGgi0SjS
Traders Expo
22 Sep 14 06:02:24
$XLV $IYT $XLF $XLE $XLP How is your ETF doing this year? http://t.co/3PhczqXgjg http://t.co/ARVk9gvrF1
TomAspray
22 Sep 14 06:02:00
$XLV $IYT $XLF $XLE $XLP How is your ETF doing this year? http://t.co/qyHjMhqI7x http://t.co/oxiSWmw200
MoneyShow Trading
22 Sep 14 06:01:35
$XLV $IYT $XLF $XLE $XLP How is your ETF doing this year? http://t.co/t6omAfuMEW http://t.co/pkX8m9fHWo
KDK Options
22 Sep 14 05:59:01
Week 9/19 In Review $XLF http://t.co/wnmQ8M19v8 #options, #trading
PennyStock Zone
22 Sep 14 05:38:44
Best day trading DVD by Fous Alerts check it out! http://t.co/HJ6WDp65fM #stocks #trading #nasdaq #nyse $XLF $HPQ $INTU $INTC $PCLN $QUNR
Van Castle
22 Sep 14 05:13:48
RT @Sassy_SPY: Bad Breadth? New Highs? Futures lower? What's next? New Post $SPY $SPX $XLF $TLT http://t.co/TKkVF2qwdA
andrew harrison
22 Sep 14 05:03:19
RT @Sassy_SPY: Bad Breadth? New Highs? Futures lower? What's next? New Post $SPY $SPX $XLF $TLT http://t.co/TKkVF2qwdA
Derek Hernquist
22 Sep 14 05:00:31
nice mashup RT @Sassy_SPY: Bad Breadth? New Highs? How About Some Sassy Insight $SPY $SPX $XLF $TLT http://t.co/wAowWw7r1O
Jordan Black
22 Sep 14 04:59:00
"@Sassy_SPY: Bad Breadth? New Highs? Futures lower? What's next? New Post $SPY $SPX $XLF $TLT http://t.co/NpYwlKOoF5" Solid Monday read!
ActiveVols
22 Sep 14 04:42:59
Mornin' form Dublin!! Looking for some action this week as #Theta keeps chewing away Novembers. #LongPremium Stay tuned! $SPY $QQQ $XLF $VIX
Rachel
22 Sep 14 04:30:55
Bad Breadth? New Highs? Futures lower? What's next? New Post $SPY $SPX $XLF $TLT http://t.co/TKkVF2qwdA
PennyStock Zone
22 Sep 14 04:05:51
Best day trading DVD by Fous Alerts check it out! http://t.co/AeQ95GG2rM #stocks #trading #nasdaq #nyse $XLF $HPQ $INTU $INTC $PCLN $QUNR
Stock_Tracker
22 Sep 14 03:52:33
Financial Select Sector SPDR (XLF) 23.65 $XLF 3 Reasons Financial Select Sector SPDR Fund Could Fall Matthew F http://t.co/CZt2TmqSfr
Stockaholics
22 Sep 14 02:18:13
SECRET Penny Stock Pick, Coming Today! Platinum Members Once Saw it Gain 81% In One Day: https://t.co/WsiOrAqT0s $XLF $F $FN $MSFT
Brett Steenbarger
22 Sep 14 01:46:34
RT @Sassy_SPY: Bad Breadth? New Highs? How About Some Sassy Insight…$SPY $SPX $XLF $TLT http://t.co/TKkVF2qwdA @ukarlewitz @steenbab
Investors Hangout
22 Sep 14 01:39:26
Stock_Tracker: Financial Select Sector SPDR (XLF) 23.65 $XLF 3 http://t.co/WPori6OcDz
				
				
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.