September’s recent technology sell-off was a reminder that the sector isn’t immune despite its outperformance during the Covid-19 pandemic. With more investors eyeing value-oriented plays amid forthcoming uncertainty in the capital markets, financial exchange-traded funds (ETFs) are benefiting from the rotation to value.
“Financial sector exchange-traded funds outperformed Monday as investors rotated their exposure to segments of the market that have been left behind in the big run-up in stock prices since the March bottom,” a MarketWatch article noted. “The Financial Select Sector SPDR Fund XLB as up 2.8% in the early afternoon, on track for its best daily performance since July and beating the broad S&P 500, which was up 1.8%. The Invesco KBW Bank ETF gained 3.5%. The SPDR fund is still down more than 21% in the year to date, making it a better value proposition than sectors that have benefitted in the aftermath of the COVID-19 shock: the Technology Select Sector SPDR Fund is up more than 21% so far this year. Other beaten-down segments of the market also got more attention on Monday: the Energy Sector SPDR Fund gained more than 3% and is still down nearly 50% in 2020.”
For investors wanting that broad-based exposure to the current strength in financials, they could look at the Financial Select Sector SPDR Fund (NYSEArca: XLF) and the Fidelity MSCI Financials Index ETF (FNCL). Other funds that investors can look at include the SPDR S&P Bank ETF (NYSEArca: KBE) and the Vanguard Financials ETF (NYSEArca: VFH).
Trading the Financial Sector via ETFs
For financial sector bulls, this could boost leveraged funds like the Direxion Daily Financial Bull 3X ETF (NYSEArca: FAS), which seeks daily investment results worth 300 percent of the daily performance of the Russell 1000 Financial Services Index. The index is a subset of the Russell 1000 Index that measures the performance of the securities classified in the financial services sector of the large-capitalization U.S. equity market.
There are two sides to every trade and for those who are sensing an opportunity to play the inverse side for bearishness can look at the Direxion Daily Financial Bear 3X ETF (NYSEArca: FAZ), which seeks daily investment results that equate to 300% of the inverse of the daily performance of the Russell 1000® Financial Services Index. The index is a subset of the Russell 1000® Index that measures the performance of the securities classified in the financial services sector of the large-capitalization U.S. equity market.
For more market trends, visit ETF Trends.