Investors have allocated over $2.2 billion to the Energy Select Sector SPDR (NYSEArca: XLE) this year while the Health Care Select Sector SPDR (NYSEArca: XLV) has seen inflows of nearly $828 million.
With Treasury yields rising and speculation still intense that the Federal Reserve will raise interest rates later this year, advisors should take this opportunity to explore which sectors are vulnerable to rising rates and which groups thrive as borrowing costs climb.
For example, investors have not been fond of “bond proxy” ETFs, such as the Utilities Select Sector SPDR (NYSEArca: XLU) and the Consumer Staples Select Sector SPDR (NYSEArca: XLP), this year given those sectors’ reputations for rate sensitivity. [Investors Flee Bond Proxy ETFs]
However, cyclical sector ETFs, including the Technology Select Sector SPDR (NYSEArca: XLK), can prove durable as rates rise. Apple (NasdaqGM: AAPL), Microsoft (NasdaqGM: MSFT), Google (NasdaqGM: GOOGL) and Cisco (NasdaqGM: CSCO), four of XLK’s top 10 holdings, have four of the five largest cash hoards in Corporate America. At the end of last year, Apple had $178 billion in cash and marketable securities, but that number has since grown to $194 billion. [ETFs for Cash Rich Companies]
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