American psychologist and “father” of operant conditioning, B.F. Skinner, was quoted as saying, “The real problem is not whether machines think but whether men do.” Now, I like to consider myself a thinker, but I’m also a partaker. Undoubtedly, the two go hand in hand. Participation without thought is simply reaction — and I am a proponent of action.
And, in this sense, I am here to negate Skinner’s query as to whether men think or simply act. I am of the belief that as technology continues to evolve and think, we do as well. In this instance, I am talking specifically about fintech — the constant evolution of the way money moves and the new products and developments to back up that movement.
Being a man of action is acknowledging all the parts that make up the whole — and in the realm of fintech, it’s important to look at what made this tech-wave possible in the first place: Enter, the Financial Select Sector SPDR Fund (NYSEArca:XLF).
XLF is a veteran exchange-traded fund (ETF) that gives investors front-row exposure to America’s financial giants. Think of it as the original fintech stack: banks, insurers and payment processors that make every tap, loan and trade possible. While startups pitch innovation, XLF’s holdings are the infrastructure. Without them, there’s no “fin” in fintech, but that is not to say that some of XLF’s holdings do not utilize fintech — these include JPMorgan Chase, Bank of America and Wells Fargo.
Some may ask why I am including this specific ETF in the fintech category, but it’s simple — fintech cycles come and go. But XLF’s core holdings are profitable, regulated and globally embedded, so when neobanks burn cash, XLF’s holdings are here to collect it.
What’s more, this ETF offers over $54 billion in net assets, roughly $53 billion in assets under management and a modest expense ratio of 0.08%. To sweeten the pot, let’s look at the theory behind rates and returns — when interest rates rise, banks widen their lending margins. When rates fall, deal-making and trading kick up. Either way, money moves — and XLF benefits.
Courtesy of Stockcharts.com
So, Skinner may have questioned man’s thought capability, but once again, I am here to show that none of my decisions are without thought. The chart above speaks for itself regarding XLF’s strength in an ever-changing market landscape. Sure, the ETF witnessed a severe dip in April, but not only did it right itself, it leapt to new highs and moreover, has maintained.
XLF’s top 10 holdings include Berkshire Hathaway Inc. (NYSE:BRK-B), 11.91%; JPMorgan Chase & Co. (NYSE:JPM), 11.21%; Visa Inc. (NYSE:V), 7.49%; Mastercard Incorporated (NYSE:MA), 6.07%; Bank of America Corporation (NYSE:BAC), 4.54%; Wells Fargo & Company (NYSE:WFC), 3.47%; The Goldman Sachs Group, Inc. (NYSE:GS), 3.11%; Morgan Stanley (NYSE:MS), 2.49%; Citigroup Inc. (NYSE:C), 2.41% and American Express Company (NYSE:AXP), 2.33%.
Ultimately, XLF isn’t here to dazzle you with overnight gains, it’s here to give you a front-row seat to the world’s money machine. It’s for potentially interested investors who wants broad, clean exposure to the U.S. financial sector without stock-picking stress.
Essentially, XLF is the fintech equivalent of owning the plumbing instead of the faucet — so, yes, there is no doubt that machines have evolved and do a generous amount of thinking, but it’s not to say that us movers, shakers and partakers don’t, as well.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
