You Can Bank on This Financials Fund

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

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.

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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.

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The most dominant theme/takeaway for me this year is the apparent lack of investor exposure to international equities.


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