It has a been a wild roller coaster ride for exchange traded funds (ETFs) focused on the financial sector, with fluctuations in asset value and trading volume. The effect has resulted in winners and losers.
Since its recent move to the NYSE, the Financial Select Sector SPDR (XLF), has been the most actively traded stock at the exchange. With the recent tumble in Citigroup (C) stock, and the toll that it took on the ETFs long the financial sector, XLF has traded at a 52-week low two days in a row.
Some optimists believe this makes XLF very attractive, driving trading volatility and volume up. In 2008, assets in XLF have plummeted by nearly $3 billion, fueling the trading volume to soar by 80% for the year, resulting in outstanding shares of 1.2 billion and a daily average trading volume of 255 million shares, states Eric Rosenbaum of Index Universe.
The reasons behind the dramatic drop in asset value is fairly well established, and the dramatic increase in trading volume can be attributed to exposure, allowing investors to cash in on market volatility in a manner less risky than trading individual stocks.
These ETFs are clearly doing what they’re supposed to do as investors have rushed to take advantage of market volatility this year.
Financial Select Sector SPDR (XLF): down 65.6% year to date.
ProShares UltraShort Financials (SKF): up 145.5% year to date.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.