Mass Exodus From Financial ETFs

Along with other sector exchange traded funds, the Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, is struggling and some investors are not waiting around to see if XLF rebounds.

Earlier this year, financials were also propped up by a rise in bond yields as higher interest rates typically widen the margin spread between bank loans and deposits. The spreads will further widen as the Federal Reserve has stated its intentions to raise interest rates in response to economic growth and rising inflation. XLF is lower by more than 5% over the past month.

“During the four weeks ending Friday, the XLF, the S&P 500 financial sector ETF, has seen the largest outflows in three years,” reports CNBC. “The financials have fallen more than 4 percent while the S&P 500 has risen a bit more than 1 percent in that time. Investors have pulled roughly $2.5 billion out of financials ETFs in the last month.”

In the second quarter, investors have pulled $502.50 million from XLF.

Disappointments For Financials

XLF and other financial services ETFs were expected to be sound bets heading into this year amid expectations of multiple interest rate hikes by the Federal Reserve. The Fed has obliged, raising rates twice this year while setting the stage for perhaps two more increases before the end of 2018, but that has not moved the needle for XLF and friends.