Financial Sector ETFs Reach For New Highs
While the technology sector grapples with earnings disappointments this week, financial stocks have quietly plodded to new 2015 highs.
The Select Sector Financial Slct Str SPDR Fd (NYSE: XLF) has over $20 billion dedicated to 90 large-cap bank, brokerage, REIT and consolidated financial companies. This sector benchmark is home to household brands such as Wells Fargo & Co (NYSE: WFC) and Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B).
Despite a slow start to the year, financial companies have steadily made their way higher and are now standing on the precipice of a breakout to new 52-week highs.
A Closer Look At XLF
XLF is up more than 4 percent so far in 2015, and the recent strength in this index has been confirmed by solid earnings announcements by many of its top holdings.
One interesting counterpoint to this momentum in XLF included a 2-day net outflow totaling $1.765 billion in mid-July. This could potentially be a signal that a large investor was divesting itself of financial stock exposure as this index began its ascent.
The Banking Subsector
One of the stronger areas of the financial sector this year has been the banking industry. The SPDR KBW Bank (ETF) (NYSE: KBE) tracks an equal-weighted index of 66 national and regional banking institutions. This ETF has $3.38 billion in total assets and charges an expense ratio of 0.35 percent.
Since the start of 2015, KBE has gained nearly 11 percent and is currently trading near its recent highs. Some investors believe that banks are well positioned to benefit from the eventual rise in interest rates, as the Federal Reserve looks to normalize its overnight lending rates.
Intermediate-term interest rates have already risen significantly this year from their lows and acted as a tailwind for the financial sector. The 10-Year Treasury Note Yield has climbed from a low of 1.65 percent in January to its current reading of 2.32 percent. This represents a 40 percent increase in a relatively short period.
Financial stocks represent the second largest sector within the S&P 500 Index at 16.60 percent. As such, they should be a key market segment to watch in the back half of 2015.
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