Broker-dealers and capital markets stocks are loving the idea of higher interest rates. The SPDR S&P Capital Markets ETF (NYSEArca: KCE) is proof positive of that.
The $183.4 million, equal-weight KCE is up 4.3% over the past month, a performance that is nearly 200 basis points ahead of the Financial Select Sector SPDR (NYSEArca: XLF). KCE has recently notched several consecutive closes above $52, something the ETF had not done in over seven years. That says the ETF’s technical outlook is bright.
On Tuesday, 10-year Treasury yields rose more than 2% “helping to keep the tailwind behind companies that benefit from higher rates. Morgan Stanley (NYSE: MS), Charles Schwab (NYSE: SCHW), E*Trade Financial (NasdaqGS: ETFC) and Raymond James Financial (NYSE: RJF) managed to clock 52-week highs,” according to Captain John Charts.
Those stocks combine for nearly 11% of KCE’s weight.
KCE “focuses on the Capital Markets such as companies that do business as broker dealers, asset managers, trust and custody banks, as well as exchanges. Now the good stuff from a chart perspective. The price chart is breaking out of a basing pattern which some may view as a bullish Head and Shoulder continuation pattern,” notes Captain John Charts. [Wall Street ETF Awakens]
So KCE’s chart looks good and the ETF’s fundamentals appear sound because everyone and his sister expects the Federal Reserve to raise interest rates, but KCE is a legitimate play another important theme: The growth of the ETF industry.
The global exchange traded products industry recently celebrated another milestone, that being reaching $3 trillion in combined assets under management at the end of May. Goldman Sachs sees that figure doubling and doing so by 2020. [ETFs: $3 Trillion is Nice, but $6 Trillion is Better]
That is good news for an ETF like KCE, which devotes almost 11% of its weight to BlackRock (NYSE: BLK), State Street (NYSE: STT), Invesco (NYSE: IVZ), parent company of PowerShares, and WisdomTree (NasdaqGS: WETF). Those are four of the five largest U.S. ETF sponsors.
KCE also holds Janus Capital (NYSE: JNS), Bank of New York Mellon (NYSE: BNY), Northern Trust (NasdaqGM: NTRS) and Schwab, all of which have significant ETF exposure.
SPDR S&P Capital Markets ETF
Chart Courtesy: Captain John Charts