The number of investors that like bank stocks and the related exchange traded funds rapidly dwindling as the financial services sector ranks as one of this year's worst-performing groups in the S&P 500.
The Financial Select Sector SPDR (NYSE: XLF), the largest ETF dedicated to financial services stocks, and the SPDR S&P Regional Bank ETF (NYSE: KRE) are epic disappointments this year as highlighted by an average year-to-date loss of 18.52 percent for the two funds.
Data suggest investors are not waiting around for XLF and KRE to rebound.
“Outflows from the $21 billion Financial Select SPDR Fund, or XLF, are driving the record $9.2 billion that’s been pulled from all ETFs tracking financials this year,” reports Bloomberg. “Traders have also been closing out their bets in the $2.7 billion SPDR S&P Regional Banking ETF, which tracks an equal-weighted portfolio of banks stocks. XLF is more diversified, with 49 percent of its holdings in banks, and about 32 percent in insurance companies.”
Why It's Important
Risk-tolerant traders can exploit ongoing weakness in the financial services sector with several inverse leveraged ETFs, including the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ). FAZ looks to deliver triple the daily inverse performance of the Russell 1000 Financial Services Index.
Underscoring the weakness in financials, FAZ finished 2018 with a month-to-date gain of just over 35 percent, making it the eighth-best bearish fund in Direxion's lineup this month, according to issuer data.
While $4.53 billion has departed XLF this quarter, more than any other ETF, traders have also pulled $41.24 million from the bearish FAZ, indicating some profit-taking in that triple-leveraged ETF.
As noted earlier, regional bank stocks are tumbling as well, a major disappointment when considering that group usually follows Treasury yields higher.
The Direxion Daily Regional Banks Bear 3X Shares (NYSE: WDRW), the only triple-leveraged inverse ETF targeting regional banks, is surging. WDRW, which tries to deliver triple the daily inverse performance of the S&P Select Regional Bank Index, ended December up nearly 60 percent, easily making it the best-performing bearish Direxion fund on a month-to-date basis.
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