Deregulation could also help the financial sector improve their margins. President Donald Trump’s administration has shown its eagerness in cutting back the red tape and remove some of the post-financial crisis regulations that has stifled the industry.
“Obviously we’re at 10-year highs, which could be a headwind [and also]the Fed chair pick could dampen yields depending on who’s selected. But I think in the long run we may actually see some more new highs in this index before we actually see any type of meaningful correction,” said Lien in an interview with CNBC.
Looking ahead, analysts project U.S. bank earnings to expand 12.8% in 2018, and BlackRock sees “scope for this number to improve.” Furthermore, the sector is trading at cheap valuations, with U.S. banks discounted by24% compared to 5% for European banks.
Rivals to XLF include the Fidelity MSCI Financials Index ETF (NYSEArca: FNCL), iShares U.S. Financials ETF (NYSEArca: IYF) and Vanguard Financials ETF (NYSEArca: VFH).
For more information on the financial sector, visit our financial category.