The Right ETF For Flailing Financial Stocks

It is official. After stumbling nearly 1% last Friday, the Financial Select Sector SPDR (NYSEArca: XLF), the largest exchange traded fund dedicated to the financial services sector, is just over 20% below its 52-week high, many think the fund is in a bear market.

The same is true for an array of financial services stocks and ETFs, which is good news for the Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ). FAZ attempts to deliver three times the daily inverse performance of the Russell 1000 Financial Services Index.

“With Friday’s decline, financials joined the energy and materials sectors in bear-market territory. Energy is down 21.3 percent from its 52-week high reached in May, while material stocks are down 20.35 percent from a record set in January,” according to CNBC.

The 2018 performances of XLF and rival financial services ETFs are undoubtedly disappointing for investors that bet the sector would rally against the backdrop of rising interest rates. The Federal Reserve has boosted borrowing costs three times, moves many market observers believed would lift the fortunes of the rate-sensitive financial sector.

Big Returns

As a leveraged ETF, FAZ is not intended to be a long-term investment and should not be held for more than a few days, but its recent performance is undoubtedly compelling. The bearish financial services ETF jumped nearly 9% last week.

“Financials fell 1 percent on Friday, closing down 20.06 percent from a 52-week high reached in January. The decline was driven by a fall in bank shares amid worries about slowing global economic growth,” reports CNBC.