Financial Select Sector SPDR Fund (NYSEARCA: XLF ) - This exchange-traded fund attempts to mirror the price and yield performance of publicly traded stocks of companies in the Financial Select Sector Index.
The index includes companies from the following financial subsectors: diversified financial services, insurance, commercial banks, capital markets, REITs, consumer finance, thrifts and mortgage finance. All of the groups should benefit from an increase in interest rates, which is forecast by most analysts to occur this year.
Despite the delay in raising rates, this ETF has performed well, with three-month performance at 3.96% and six-month performance at 17.71%, as of August 31. The return includes a modest annualized expense ratio of 0.14%, or $14 per $10,000 invested, plus reinvested dividends.
The annualized dividend yield is now 2.57% based on a dividend of $0.62. The current top 10 holdings as of Sept. 9 include: Berkshire Hathaway Inc. 'B' (NYSE: BRK.B ), JPMorgan Chase & Co (NYSE: JPM ), Wells Fargo & Co (NYSE: WFC ), Bank of America Corp (NYSE: BAC ), Citigroup Inc (NYSE: C ), U.S. Bancorp (NYSE: USB ), American International Group Inc (NYSE: AIG ), Simon Property Group Inc (NYSE: SPG ) and Goldman Sachs Group Inc (NYSE: GS ).
Technically, despite sluggish returns early in 2016, this ETF confirmed a breakout to a bull market when it broke from a Cup & Handle formation in August. Prior price action hinted at a pending break, and in May, XLF broke through its bearish resistance line at about $23 but reversed, breaking support at its 200-day moving average during the Brexit sell-off in late June.
But its recovery was a demonstration of technical excellence as it executed a selling climax and in 10 sessions closed over the previously violated 200-day line.
Hindsight reveals that the sell-off evolved into the bottom of a Cup & Handle formation, and a break from that pattern on August 5 at about $23.75 restored its bullish bias and it rose to a high at $24.64 on September 1.
Friday's interest hike scare drove XLF to a major support line and the 50-day moving average at $23.78 where a CBR buy signal (my internal indicator) was triggered yesterday. Buy XLF at $24 for a trade to $28. Investors may also include this ETF in portfolios for the long-term growth associated with the financial sector.
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