The rotation into financial services stocks and exchange traded funds is real. In November, the Financial Select Sector SPDR (NYSE: XLF), the largest financial services ETF, added $1.5 billion in new assets.
Last week, XLF added nearly $530 million in new assets, a total exceeded by just five other ETFs. That brought XLF's fourth-quarter inflows to almost $2.33 billion, good for the seventh-best fourth-quarter haul among all U.S.-listed ETFs.
Expectations that the Trump administration's tax reform package will come to life — and that the Federal Reserve will continue a gradual pace of interest rate hikes next year — are among the catalysts sending investors to bank stocks and ETFs. Other funds are benefiting as well, including the PowerShares KBW Bank Portfolio (NASDAQ: KBWB).
Unlike XLF, which is a diversified financial services ETF, KBWB is a dedicated bank fund. The PowerShares ETF tracks the widely followed KBW Nasdaq Bank Index. That benchmark “is composed of approximately 24 companies representing leading national money centers and regional banks or thrifts,” according to PowerShares.
KBWB is up nearly 14 percent since the start of the fourth quarter, a move that accounts for the bulk of the ETF's almost 17 percent year-to-date gain. Over the past month, investors have added nearly $50 million in new capital, good for the seventh-best total among all PowerShares ETFs, according to issuer data.
Over the past 90 days, KBWB has seen nearly $73 million of inflows, bringing its year-to-date total to almost $324 million. Said another way, KBWB has added more than 30 percent of its $1.04 billion in assets under management just since the start of 2017.
What Drives KBWB
Due to its emphasis on bank stocks, KBWB's lineup is smaller relative to diversified financial services funds. The fund is also top-heavy: Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM) and Citigroup Inc. (NYSE: C) combine for nearly one-quarter of the ETF's roster.
Confirming the notion that bank stocks are one of the last vestiges of value in the U.S. equity market, KBWB sports a price-to-earnings ratio of 15.5, marking a considerable discount to the S&P 500.
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Todd Shriber owns shares of XLF.
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