Performance data prove the XLF/XLU comparison is significant. Remember that as 10-year Treasury yields spiked last year, XLF surged 35.5% while XLU gained just 13%, less than half the returns offered by the S&P 500. During the 2004-2006 interest rate-tightening cycle, XLU was a laggard while XLF climbed 40%. [Rising Rates Sector ETF Ideas]
In further evidence that some market participants are expecting rates to rise, here is the breakdown of the top-10 non-leveraged ETFs over the past month: Five financial services ETFs, four health care funds and the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), a predictable beneficiary of expected dollar strength brought on by rising rates.
The other lesson from that top-10 group is that health care can be a durable sector as rates rise. Like XLF, the Health Care Select Sector SPDR (NYSEArca: XLV) gained about 40% during the 2004-2006 tightening cycle.
Financial Select Sector SPDR
