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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.


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Results for xlf
Michael W
23 Nov 14 08:41:03
RT "@WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/kl2Mfy8QPA $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/z5o7rkzfmC” - nice! Ty
Dexter
23 Nov 14 07:10:19
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
Alexey
23 Nov 14 06:42:05
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
InversBioTech
23 Nov 14 06:40:29
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
natetrades
23 Nov 14 06:36:50
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
fractalhedge
23 Nov 14 06:34:06
β€œ@WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/GTyaDc2fDp $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/vZts4qU7Q5”
Hi Roberts
23 Nov 14 06:27:39
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
aziz saba
23 Nov 14 06:07:46
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
Tony B
23 Nov 14 05:57:11
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
Michael Hurt
23 Nov 14 05:56:08
RT @WallStJesus: RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
JE$US
23 Nov 14 05:53:03
RELATIVE ROTATION GRAPH πŸ‘‰ http://t.co/Bke8TqxmPw $XLE $XLP $XLU $XLX $XLF $SPY http://t.co/tEPGWYbBkP
Darlene S Williams
23 Nov 14 05:32:50
@DSWzonepicktick @XE @WPCAREYALUMNI @DiscoverCotton @ShopFloorNAM @RedHatStorage @NASDAQ $XLF #PENDINGCOUNSELARBITRAGELITIGATIONSARBITRATION
Bagholder
23 Nov 14 04:15:00
$XLF 3 weeks tight? $MS $WFC $C looking similar
Hedge AccordingLy
22 Nov 14 21:38:37
William Dudley of New York Fed Defends Big Bank Oversight Before SenateΒ $XLF http://t.co/ThKM8fKaf4
WallStFuturePro
22 Nov 14 20:11:04
$XLF showing bearish pattern
Peak Discounters β˜…
22 Nov 14 19:11:07
RT @MatrixMarkets: S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http:…
FollowBackFest β™ͺ
22 Nov 14 19:10:46
RT @MatrixMarkets: S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http:…
Baidu Planet ●
22 Nov 14 19:10:25
RT @MatrixMarkets: S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http:…
Apple Reporter ●
22 Nov 14 19:09:07
RT @MatrixMarkets: S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http:…
Google Investor ♦
22 Nov 14 19:08:45
RT @MatrixMarkets: S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http:…
Boom Doom Economy ♦
22 Nov 14 19:07:33
RT @MatrixMarkets: S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http:…
Osprey Flyer ^v^
22 Nov 14 19:05:10
RT @MatrixMarkets: S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http:…
Matrix Markets $
22 Nov 14 19:03:37
S&P 500 Ends Week at All-Time Closing High http://t.co/rnDoixOETm $SPY $QQQ $IWM $SMH $XLF $AAPL $BABA $GLD $GOOGL http://t.co/TxlMtf01uw
Abel Daltrey
22 Nov 14 17:15:41
aJefqWkhPn Midweek Stock Mkt Analysis 10/22/14 $SPY $QQQ $IWM $XLF $SMH $AAPL
Stockaholics
22 Nov 14 13:26:46
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $XLF $F $FN $MSFT
Cornholio
22 Nov 14 09:24:11
@hmeisler $XLF gets really skewed by $BRK.b
Green to Gold Group
22 Nov 14 05:35:18
#Tampa - Currency Fixing Top Bank Scum Shame on you Check out this video from http://t.co/eHnhy0mV0G $XLF $FXE $UUP $EURUSD $DIA $SPY FOREX
Green to Gold Group
22 Nov 14 05:31:46
Currency Fixing Top Bank Scum #Shameonyou Check out this video from http://t.co/whqhj48ntk $XLF $FXE $UUP $EURUSD $DIA FX FOREX @cspanwj
Stockaholics
21 Nov 14 23:46:38
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $XLF $F $FN $MSFT
Hedge AccordingLy
21 Nov 14 20:23:45
Zacks Analyst: JPMorgan Chase, Morgan Stanley, Goldman Sachs and Bank of America | $GS $BAC $MS $JPM $XLF | http://t.co/CoT2o22W8l
StockCharts.com
21 Nov 14 17:46:52
Technical Alert: Financial Sector ETF sets new 4-year high $XLF http://t.co/vygj1dQe3S #sccalerts #stockcharts
Ben Silverberg
21 Nov 14 17:17:18
Leading market sectors higher Friday included: $XLF $XLE $USO $XLB $XME $IYR $XLI $ITB $TLT $FXI $KOL $SLV and many more.
dalestrnad
21 Nov 14 17:16:06
At this point $free can fish for sardines & have a better stock price.OVERSOLD!!!Starting a position again. $spy $gdx $ung $aapl $xlf $xop
Stockaholics
21 Nov 14 16:04:12
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $XLF $F $FN $MSFT
Mark Mansfield
21 Nov 14 14:38:54
RT @paulwoll: $QQQ $XLF other bearish "topping" candles.... to end the day...
ShortStockVolume.com
21 Nov 14 14:32:06
Top Shorted Stocks 11/21/14... 14. $AMX 71.30% 15. $XLF 70.63% 16. $EWT 70.62% 17. $JNS 70.56% 18. $EEM 70.00% 19. $USO 69.32%...
ShortStockVolume.com
21 Nov 14 14:32:03
Top Shorted Stocks 11/21/14... 13. $FAST 71.96% 14. $AMX 71.30% 15. $XLF 70.63%... http://t.co/NAclvFr0qe
MJR
21 Nov 14 14:25:41
$ES_F Only megaphone invalidated on close is $DIA Dow .6 month wide bear megaphones still intact in $XLY $QQQ $XRT $SPY $XLF weekly charts
Robin Murray MD CFII
21 Nov 14 13:30:58
RT @paulwoll: $QQQ $XLF other bearish "topping" candles.... to end the day...
WallStreetConsensus
21 Nov 14 13:23:27
Index/Sectr $DIA, $SPY, $QQQ, $IWM, $XLB, $XLE, $XLF, $XLI, $XLK, $XLP, $XLU, $XLY, $XRT, $XLV, $IYT http://t.co/KAeWhc8n9u
Woll Street
21 Nov 14 13:19:46
$QQQ $XLF other bearish "topping" candles.... to end the day...
GrenadeTrade
21 Nov 14 13:07:18
Bullish outside weeks for the financials have not been a good thing for $XLF this year. Posted one this week.
Thomas Miskiewicz
21 Nov 14 12:56:06
RT @Flower_Power_67: #HalfTimeReportEspresso FINAL CALLS: Stephanie Link β€”> buy $DG Mike Murphy β€”> buy $HTZ Dr J β€”> buy $RLGY Josh Brown β€”>…
FlowerPower
21 Nov 14 10:27:44
#HalfTimeReportEspresso FINAL CALLS: Stephanie Link β€”> buy $DG Mike Murphy β€”> buy $HTZ Dr J β€”> buy $RLGY Josh Brown β€”> buy $XLF
lookn4wins
21 Nov 14 10:14:12
$XOP Candlesticks $XOP Most recent stock chart and technical analysis. $XLF $GRCU $TZA $CNQ.TO $T $CANF http:/ http://t.co/EYWz38Q6hw
Stockaholics
21 Nov 14 10:12:46
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $XLF $F $FN $MSFT
MarketCurrents
21 Nov 14 10:08:42
UBS: Financials a buy in 2015 http://t.co/6Ta30XkqVT $XLF $FAS $FAZ $UYG
erik paul
21 Nov 14 10:02:52
Fins & Banks Lod- $KBE $XLF $FAS $ES_F now 2059.00 +7.00
Jake13
21 Nov 14 09:45:59
$XLF Opinion Today Click here to find out if $XLF is a buy hold or sell. Watching these stocks. $GOOG $GGAL $C http://t.co/cbdZ3czTc8
danrocks
21 Nov 14 09:32:05
$GE alot of talk going around about this one $SPLK $XLF $HAL $NLNK $GDX http://t.co/z4zhPf52A3
				
				
By  +Follow December 9, 2013 1:47PM
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