This article was originally published on ETFTrends.com.
Declining Treasury yields are chasing investors from some exchange traded funds tracking financial services stocks, including the iShares U.S. Financial Services ETF (IYG) .
“Investors yanked $174 million from the iShares U.S. Financial Services ETF, or IYG, on June 19. That’s a record outflow for the fund which -- with over 60 percent of its holdings in U.S. banks -- has the largest exposure among broad financials ETFs. And volume was over $214 million, almost 15 times the average daily turnover in the past year,” reports Bloomberg.
The $1.87 billion IYG recently turned 18 years old and tracks the Dow Jones U.S. Financial Services Index. IYG holds 115 stocks.
Higher Yields Better For Banks
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.
Banks are usually positively correlated to higher Treasury yields because as those yields rise, banks can charge higher rates on loans.
“Mounting trade war concerns and declining Treasury yields this week have put pressure on bank stocks. The yield on 10-year Treasuries was as low as 2.88 percent Wednesday, the lowest since June 1, putting investors’ hopes for 3 percent on hold,” according to Bloomberg.
IYG allocates nearly 54% of its weight to bank stocks with diversified financial services names accounting for 32.2% of the fund's weight. The ETF's top 10 holdings include JPMorgan Chase & Co. (JPM), Bank of America's Corp. (BAC), Wells Fargo Co. (WFC) and Citigroup Inc. (NYSE: C).
Fundamental factors, including the aforementioned rising interest rates, have been supportive of bank stocks and ETFs this year. Additionally, the financial services sector, the second-largest sector weight in the S&P 500, has had the regulatory wind at its back this year as the Trump Administration has sought to roll back parts of the Dodd-Frank legislation. Still, the sector is disappointing investors.
For more information on the banking sector, visit our financial category.
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