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.

Results for xlf
Steffen Cairbre
16 Apr 14 14:43:04
$XLF [video] Pisani: Yellen holding your hand http://t.co/ISp2Xd2PzV
WallStreetConsensus
16 Apr 14 14:29:31
Index/Sectr $DIA, $SPY, $QQQ, $IWM, $XLB, $XLE, $XLF, $XLI, $XLK, $XLP, $XLU, $XLY, $XRT, $XLV, $IYT http://t.co/ZmQ43RoN61
Sunrise Trader
16 Apr 14 13:54:42
Candle glance $XLF $IYT $IYR $XLK and more http://t.co/WiCkCLgs0f
Vix Contango
16 Apr 14 12:53:04
@fmoVIX Yup.I'm gonna have to wait a couple of days LOL. This rally is unsupported by the components. $QQQ $IWM $XLF bounced very little
Befree
16 Apr 14 12:40:04
RT @Mella_TA: $XLF - http://t.co/UXyCOFLaGT - If XLF & SPX get over this next hump (tomoz) then look out above, all indices inches away fro…
Medicated
16 Apr 14 12:38:43
RT @Mella_TA: $XLF - http://t.co/UXyCOFLaGT - If XLF & SPX get over this next hump (tomoz) then look out above, all indices inches away fro…
Mella
16 Apr 14 12:33:30
$XLF - http://t.co/UXyCOFLaGT - If XLF & SPX get over this next hump (tomoz) then look out above, all indices inches away from a macd cross
Steffen Cairbre
16 Apr 14 12:24:05
$XLF [video] Earnings Squad: PEP, GS & more http://t.co/hDt9i2yq5c
Rynobolt
16 Apr 14 12:21:35
@traderstewie $BRKB playing with a range breakout too. Largest $XLF component.
Steve
16 Apr 14 12:15:28
@TweetLeni $XLF rallied back to neck line of H&S 4hr
Steffen Cairbre
16 Apr 14 11:50:05
$XLF [video] How Goldman Sachs & Morgan Stanley compare http://t.co/kKx8sAdGtm
Kaneco
16 Apr 14 11:41:38
RT @andrewunknown: $BAC With Earnings Behind, Song Remains the Same: Wedge Breakdown from Bearish Bat PRZ. $XLF $BKX http://t.co/TTSjTBnA3f
Andrewunknown
16 Apr 14 11:40:51
$BAC With Earnings Behind, Song Remains the Same: Wedge Breakdown from Bearish Bat PRZ. $XLF $BKX http://t.co/TTSjTBnA3f
Kaneco
16 Apr 14 11:28:02
Shorting $XLF I call BS on this move.
Palmieri
16 Apr 14 11:18:07
$BAC 15.98 -2.50% $XLF 21.71 +.28%
Dan Nathan
16 Apr 14 11:16:42
@provendirection @EnisTaner closed $MS put spread Fri: http://t.co/HZ5OmR3jb6 & closed $XLF puts friday:http://t.co/BmwA1UrI4P impl move 5%
KRS
16 Apr 14 10:39:51
financials need a strong push higher here or check out which way they're headed (chart attached) $XLF $SPY $ES_F http://t.co/IemdgqLsj3
Timothy Anderson
16 Apr 14 10:31:06
@allstarcharts and the $XLF if +50% for the same time period!!!!
Steffen Cairbre
16 Apr 14 09:46:06
$XLF Surveying Recent Bank Performance; Needless Risk-Seeking Emerges http://t.co/KHz8mGu3Qp
Steffen Cairbre
16 Apr 14 09:40:36
$XLF [video] Secular bull market headed higher: Pro http://t.co/CMR7G0DlRi
Steffen Cairbre
16 Apr 14 09:40:35
$XLF Bank of America: Here’s what investors can expect http://t.co/NSCRmMcF6e
Steffen Cairbre
16 Apr 14 09:18:35
$XLF [video] Cramer's stock to watch: Bank of America http://t.co/HSAro29JHy
Steffen Cairbre
16 Apr 14 09:12:36
$XLF [video] Boutique banking with Moelis & Co. http://t.co/ZpHxmiL4IE
Steffen Cairbre
16 Apr 14 09:12:36
$XLF Goldman Sachs earnings: what investors expect http://t.co/1axRK5QGLk
Shan Shan Xie
16 Apr 14 08:59:21
We may miss the fuzzy suppositions but we shall not completely lose all sense of direction. $XLF $TLT $SPY
Steffen Cairbre
16 Apr 14 08:07:35
$XLF [video] Boutique banking with Moelis & Co. http://t.co/ZpHxmiL4IE
Kyle
16 Apr 14 08:06:44
Banks also trading rough. $BKX down half a percent, $XLF UNCH
Tuan
16 Apr 14 08:04:42
$XLF $FAZ prior support now looks like resistance...
GoldMember
16 Apr 14 08:04:39
$XLF back in the red
BlockTradeAlert
16 Apr 14 07:56:18
BLOCK TRADE: $XLF 2,000,000 shares @ $21.67 [10:56:17]
Financial Skeptic
16 Apr 14 07:43:07
Goldman Sachs Giant Squid Bear Case Scenario $GS, $XLF, $MS, $SCHW, $MQBKY, $AMTD http://t.co/NVvIw2iRJq
Financial Skeptic
16 Apr 14 07:41:03
Goldman Sachs Giant Squid Bear Case Scenario $GS, $XLF, $MS, $SCHW, $MQBKY, $AMTD http://t.co/WTXVTBJXe3
Vix Contango
16 Apr 14 07:29:27
$SPY $XLF hitting the ceiling at 50 dma $XLY $IWM well below 100 dma $QQQ tested 200 dma yesterday Dow theory confirmations everywhere
Steffen Cairbre
16 Apr 14 07:04:08
$XLF Goldman Sachs earnings: what investors expect http://t.co/1axRK5QGLk
Steffen Cairbre
16 Apr 14 07:04:08
$XLF [video] Cramer's stock to watch: Bank of America http://t.co/HSAro29JHy
GoldMember
16 Apr 14 07:03:12
$XLF just went red for the day.
Aaron
16 Apr 14 06:59:55
I'm not trying to play any financials on this bounce...fugly action $xlf
Travis Howard
16 Apr 14 05:38:32
Options activity watch $SPY $BAC $FB SIRI $XLF $QQQ $IWM $VXX $EWJ $KO $RAD $FXI $TZA $INTC Ultimate Options & Stock http://t.co/KhvYtMNqer
marketzone
16 Apr 14 05:19:50
Photo: $XLF short trade setup sent to the Elite Zone members reached first target level. The ETF is below... http://t.co/dHAMkQttYp
Steffen Cairbre
16 Apr 14 05:04:57
$XLF [video] Secular bull market headed higher: Pro http://t.co/CMR7G0DlRi
Steffen Cairbre
16 Apr 14 04:24:03
$XLF Morgan Stanley upgraded to buy from neutral http://t.co/XDrnzQnK0N
Steffen Cairbre
16 Apr 14 04:24:03
$XLF [video] Managing your nest egg http://t.co/XpY1SWPqbv
Ben
16 Apr 14 04:13:12
Financials was good play late 2013-early14, $XLF not anymore imo. Stick with whats working $XLE $XLU
Steffen Cairbre
16 Apr 14 04:12:38
$XLF [video] Bill Nygren's new ideas http://t.co/dwGeIpCqMZ
Steffen Cairbre
16 Apr 14 03:54:35
$XLF Navigating The Icarus Market: Monthly Survey Of The Economy, Rates And Markets http://t.co/ONtx863Z3G
Steffen Cairbre
16 Apr 14 03:32:06
$XLF What To Expect From Bank Of America In Roller Coaster Bank Earnings Season http://t.co/Sebebqvbku
Steffen Cairbre
16 Apr 14 03:09:45
$XLF Bank of America: Here’s what investors can expect http://t.co/NSCRmMcF6e
Steffen Cairbre
16 Apr 14 03:09:44
$XLF Surveying Recent Bank Performance; Needless Risk-Seeking Emerges http://t.co/KHz8mGu3Qp
Stock Forums
16 Apr 14 02:19:45
Share your opinions about $XLF with 12,000+ active traders today! Click Here: http://t.co/9xWOyefkZW Trending $PFNO $SH $HD $GGSM
Seeking Alpha
16 Apr 14 02:14:41
Surveying Recent Bank Performance; Needless Risk-Seeking Emerges http://t.co/MmHIh002ri $C $JPM $KBE $WFC $XLF
				
				
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.