Heartened by the results of the Federal Reserve’s stress tests and the annual Comprehensive Capital Analysis and Review (CCAR), investors are devoting cash to financial services exchange traded funds.

“ETFs dedicated to Financial stocks had $1.5 billion of inflows last month,” said Nicholas Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York, in a note out Wednesday. [Sluggish Q1 ETF Flows]

Investors plunked money into ETFs such as the Financial Select Sector SPDR (NYSEArca: XLF), the largest U.S. sector ETF, and the Vanguard Financials ETF (NYSEArca: VFH), despite the Fed’s rejection of Citigroup’s (NYSE: C) plans to return more capital to shareholders via increased buybacks and dividends. Citi is a top-10 holding in XLF, VFH and rival bank ETFs, though XLF and VFH are each up more than 4% in the past month, indicating investors are comfortable looking past single-stock issues while betting on further upside for the financial services sector. [Big Day for Bank Dividends, ETFs]

XLF and ETFs such as the SPDR S&P Bank ETF (NYSEArca: KBE) and the SPDR S&P Regional Banking ETF (NYSEArca: KRE) did see some outflows late last month after Fed Chair Janet Yellen hinted interest rates could rise sooner than some investors previously expected. However, higher rates could prove to beneficial to some bank ETFs.

“Higher rates could relieve bankers whose profits have been squeezed by a revenue slump and rising costs. A yield curve plots interest rates over different lengths of time, so a steeper curve creates more of a spread or profit margin for banks between what they pay for short-term deposits and the longer-term yields they can earn on lending and investments,” report Elizabeth Dexheimer and Christopher Condon for Bloomberg.

Showing Page 1 of 2