Exchange Traded Funds (ETFs)

ETF Talk: Secure the Future with This Financial ETF

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.

Exclusive ETF Talk: Finding Value in Your Brokerage

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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.