While the past may be history, the future is a mystery. Still, while no one truly knows what the future holds, we can do our best to make an educated and informed guess about what may be coming on the horizon.
Nowhere is this more relevant than in the stock market. Currently, the signs point to an uncertain future for mega-cap tech. Semiconductor stocks have taken a sharp turn lower over the past couple of weeks, and poor showings from Google (NASDAQ: GOOG) and Tesla (NASDAQ: TSLA) have put the long-term viability of artificial intelligence (AI) into question.
On the flipside, certain market forecasters are predicting there will be at least two Federal Reserve interest rate cuts by year-end. And the market’s not looking into a crystal ball to determine that. It instead is looking at the outperformance/rotation into sectors that benefit from a lower-rate environment, such as staples, energy, real estate and financials, the latter of which, in particular, is seeing moves higher.
So, how do we take advantage of such a future? By investing in the right fund for the job: the Financial Select Sector SPDR ETF (XLF).
Issued in 1998 by State Street, XLF tracks the Financial Select Sector Index, an index of S&P 500 financial stocks which are weighted by market cap. The fund generally invests at least 95% of its total assets in the securities comprising the index. Its cap-weighted portfolio avoids small-caps, instead focusing only on large banks and other beefy financial institutions.
Almost 80% of XLF’s holdings are in Finance, with another 18% being held in Commercial Services. Over 95% percent of its holdings are also U.S.-based. This allows XLF to offer efficient exposure to the heavyweights in the U.S.-financials segment.
Some of XLF’s top holdings include Berkshire Hathaway’s B-class shares (NYSE: BRK.B), JPMorgan Chase (NYSE: JPM), Visa (NYSE: V), Mastercard (NYSE: MA), Bank of America (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC) and Goldman Sachs Group Inc. (NYSE: GS).
Chart courtesy of StockCharts.com.
Currently, the fund has an expense ratio of 0.09%, and $42.07 billion in assets under management. As of July 29, the fund is up 5.45% in the past month, 6.77% in the last three months, 16.18% year to date and 25.26% in the past year. This indicates a healthy market for both financial trading and XLF as a whole.
While we can do our best to predict the financial future, only you can properly predict yours. You should always consider your investment goals and do your due diligence before adding any stock or exchange-traded fund (ETF) to your portfolio.
As always, I’m happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.
