Market Overview

Investors' Disdain For Bank Stocks Could Lift These ETFs

Investors' Disdain For Bank Stocks Could Lift These ETFs

The number of investors that like bank stocks and the related exchange traded funds rapidly dwindling as the financial services sector ranks as one of this year's worst-performing groups in the S&P 500.

The Financial Select Sector SPDR (NYSE: XLF), the largest ETF dedicated to financial services stocks, and the SPDR S&P Regional Bank ETF (NYSE: KRE) are epic disappointments this year as highlighted by an average year-to-date loss of 18.52 percent for the two funds.

What Happened

Data suggest investors are not waiting around for XLF and KRE to rebound.

“Outflows from the $21 billion Financial Select SPDR Fund, or XLF, are driving the record $9.2 billion that’s been pulled from all ETFs tracking financials this year,” reports Bloomberg. “Traders have also been closing out their bets in the $2.7 billion SPDR S&P Regional Banking ETF, which tracks an equal-weighted portfolio of banks stocks. XLF is more diversified, with 49 percent of its holdings in banks, and about 32 percent in insurance companies.”

Why It's Important

Risk-tolerant traders can exploit ongoing weakness in the financial services sector with several inverse leveraged ETFs, including the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ). FAZ looks to deliver triple the daily inverse performance of the Russell 1000 Financial Services Index.

Underscoring the weakness in financials, FAZ finished 2018 with a month-to-date gain of just over 35 percent, making it the eighth-best bearish fund in Direxion's lineup this month, according to issuer data.

While $4.53 billion has departed XLF this quarter, more than any other ETF, traders have also pulled $41.24 million from the bearish FAZ, indicating some profit-taking in that triple-leveraged ETF.

What's Next

As noted earlier, regional bank stocks are tumbling as well, a major disappointment when considering that group usually follows Treasury yields higher.

The Direxion Daily Regional Banks Bear 3X Shares (NYSE: WDRW), the only triple-leveraged inverse ETF targeting regional banks, is surging. WDRW, which tries to deliver triple the daily inverse performance of the S&P Select Regional Bank Index, ended December up nearly 60 percent, easily making it the best-performing bearish Direxion fund on a month-to-date basis.

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