With call buyers surfacing in the popular Financial Select Sector SPDR (XLF) recently, we note that the sector fund is within shouting distance of breaking out to multi-month highs.
Closing at $14.95 yesterday, XLF is approaching the $15.06 level which it traded at briefly last week (which is also the highest price level in the fund since May). XLF as many may realize, is dominated by a handful of large cap money center banking names (WFC – 9.99%, JPM 7.48%, BAC 4.66%, C 4.59%, and BRK.B, obviously not a bank, rounds out the top 5 weightings at 8.25%) and year to date has demonstrated impressive relative out-performance to the broad market.
XLF has rallied 15% year to date versus the S&P 500 Index up 12.16% during this same time period. For bulls looking to aggressively leverage exposure to continued short term upside in the Financial sector, FAS (Direxion Daily Financial Bull 3X) provides a potential vehicle and we would expect a spike in near term volume in the product given the way the market is setting up.
UYG (ProShares Ultra Financials) will also likely be in focus in coming sessions in terms of activity. For those portfolio managers whom are interested in exposure to Financials but may not necessarily want the heavier exposure to larger cap money center banking names, there exist a number of methodologies that are composed differently and weighted differently than the S&P market cap weighted index that XLF is based upon.
Other options to consider include IYF (iShares DJ U.S. Financial Sector), VFH (Vanguard Financials), FXO (First Trust Financial AlphaDEX), RYF (Guggenheim S&P 500 Equal Weight Financials), and PFI (PowerShares Dynamic Financial Sector). YTD, returns for these funds are as follows: XLF +15.00%, IYF +14.41%, VFH +14.30%, RYF +12.67%, FXO +11.59%, PFI +10.42%.
Financial Select Sector SPDR
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Full disclosure: Tom Lydon’s clients own IYF.