Categories: Exchange Traded Funds (ETFs)

You Can Bank on This Financials Fund

Market trends often affect an entire sector. For instance, biotech recently has been a wild ride for investors. Rather than dive into that uncertain investment pool right now, you may want to consider the financial services sector, which traditionally is an investing cornerstone. One exchange-traded fund (ETF) that can give you exposure to a more general swath of companies in that arena is Financial Select Sector SPDR (XLF).

Companies in the financial sector include banks, real estate firms, investment fund providers, insurance companies and more. Low interest rates generally benefit this sector, and rates can’t be much lower than they are now.

Sure enough, performance for this fund in the last 12 months has been excellent, with XLF registering an 11.12% increase. Its 0.15% expense ratio shouldn’t set any gains back too much, and XLF offers a more-than-sufficient 1.68% dividend yield. Assets managed by this fund total about $17.2 billion.

XLF is more than 96% invested in financial services in the broad sense. If you consider real estate to be a distinct area, then 13.59% of its assets are invested in that sector.

The fund’s top 10 holdings make up 48.14% of its portfolio. It has the greatest percentages of its funds invested in Wells Fargo & Company (WFC), 8.64%; Berkshire Hathaway, Inc. Class B Shares (BRK.B), 8.61%; JP Morgan Chase & Co. (JPM), 7.89%; Bank of America Corp. (BAC), 5.61%; and Citigroup, Inc. (C), 5.41%.

Keep in mind that financial services also go through down cycles when other sectors may seem more enticing. A key benefit to owning a fund is that one company’s struggles will not torpedo your entire investment.

Financial services make up one of the largest segments of the market. So, if you think financial stocks have room to rise, Financial Select Sector SPDR (XLF) may have a place among your holdings.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

In case you missed it, I encourage you to read my e-letter column from last week about a dividend-focused ETF. I also invite you to comment in the space provided below.

Doug Fabian

Doug Fabian is the Editor of Weekly ETF Report, a free weekly e-newsletter, and the newsletter Successful ETF Investing. He’s also the host of the syndicated radio show, “Doug Fabian’s Wealth Strategies.” Doug also edits the fast-paced trading service ETF Trader’s Edge, for investors who want to take their profits to the next level. Taking over the reins from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest. Doug became a member of the “SmartMoney 30” in 1999 — a listing of the most influential individuals in the mutual fund industry. In the feature, SmartMoney magazine exclaims that Doug is the best-known “trend follower” among the $56 billion (and growing) group of financial advisors. In 2001, Doug wrote “Maverick Investing,” published by McGraw-Hill. He also regularly appears at seminars around the country, stands out on the pages of the largest newspapers (The Wall Street Journal, The Los Angeles Times, and The New York Times), and speaks on national television (CNBC, Fox News, and Bloomberg Forum). For more than 35 years, Successful ETF Investing (formerly the Telephone Switch Newsletter and Successful Investing) has produced double-digit percentage annual gains. Doug has become known for his expert knowledge and timely use of innovative tools, such as exchange-traded funds, bear funds, and enhanced-index funds to profit in any market climate. For more information about Doug’s services, go to http://www.fabian.com/