Market Overview

A Look At 3 Financial ETFs Amid November's Strong Jobs Report


The impressive November jobs report helped propel the financial sector to the best level in over six years. The U.S. economy added 321,000 jobs in November, destroying expectations of 230,000. The number marked the 50th-straight month that the U.S has had positive job growth, the longest streak on record since World War II. It also marks the 10th straight month that at least 200,000 jobs have been added to the economy, the longest streak since a 19-month streak in 1995.

The economy is moving at a much faster pace than many expected heading into the end of the year, prompting the belief that the Fed will increase interest rates earlier than previously expected. The financial sector would stand to benefit greatly from an increase in interest rates, as increased rates will increase the profit margins from lending money.

Highlighted below is a number of financial ETFs that are responding to the solid jobs report and that could benefit from a rise in interest rates.

Related Link: Best And Worst ETFs Of November

Select Sector Financial

The Select Sector Financial Slct Str SPDR Fd (NYSE: XLF) tracks 87 publicly traded companies in the financial sector with more than 36 percent in the banking stocks.

The top individual holdings include:

  • Berkshire Hathaway Inc. Class B (NYSE: BRK.B) making up 9 percent
  • Wells Fargo & Co (NYSE: WFC) with an 8.5 percent holding
  • JPMorgan Chase & Co. (NYSE: JPM) coming in at 8 percent

XLF is up 13 percent year-to-date and 8 percent over the last six months. An expense ratio of 0.16 percent makes it a very favorable ETF in this sector. XLF hit new highs the last three trading days heading into the week.

Vanguard Financials

The Vanguard Financials ETF (NYSE: VFH) follows 542 companies in the financials sector.

The top individual holdings include:

  • WFC with a 7 percent holding
  • JPM making up 6 percent
  • Bank of America Corp. (NYSE: BAC) coming in at 5 percent

VFH is up 12 percent year-to-date and 7 percent over the last six months. It has an expense ratio of 0.18 percent.

iShares Dow Jones US Reg Banks

The iShares Dow Jones US Reg Banks Ind.(ETF) (NYSE: IAT) consists of 54 small and mid-sized domestic regional U.S. banks. The smaller, regional banks that tend to rely more on lending could be the biggest winners within the financial sector.

The top holdings include:

  • U.S. Bancorp (NYSE: USB) at 21 percent
  • PNC Financial Services Group Inc (NYSE: PNC) making up 12 percent
  • BB&T Corporation (NYSE: BBT) coming in at 7 percent

IAT is up 5.6 percent year-to-date and up 0.5 percent over the last six months. The ETF has an expense ratio of 0.43 percent.

The jobs numbers was a bright spot in an improving economy, however it may not be enough to force the hand of the Fed to begin raising rates before mid-2015. With that being said, interest rates could continue to trade within a narrow range before the next leg higher begins at some point in the future.

Posted-In: employment financials jobsSector ETFs ETFs


Related Articles (BAC + BBT)

View Comments and Join the Discussion!