Financial Select Sector SPDR Fund (XLF) — XLF hit a new year-to-date high on Wednesday, as financials helped lead the broader market to another big up day. The recent gains in the sector have largely been the result of anticipation of an interest rate hike by the Federal Reserve in June.
XLF attempts to mirror the price and yield performance of the Financial Select Sector Index, which includes companies in the diversified financial services, insurance, commercial banking, capital markets, REIT, consumer finance, thrifts and mortgage finance industries. Each of these groups should benefit from rising interest rates.
In the past week, I’ve focused on several stocks from these groups: Wells Fargo & Co (WFC) on May 19, BB&T Corporation (BBT) on May 20, and iShares Mortgage Real Estate Capped ETF (REM) on May 25.
XLF offers exposure to some of the biggest names in the industry, including its top 10 holdings: Berkshire Hathaway Inc. (BRK.B), JPMorgan Chase & Co. (JPM), Wells Fargo, Bank of America Corp (BAC), Citigroup Inc (C), U.S. Bancorp (USB), Goldman Sachs Group Inc (GS), American International Group Inc (AIG), Simon Property Group Inc (SPG) and Chubb Ltd (CB).
Turning to the chart, XLF has jumped more than 20% since its February low at $19.53. The recent MACD buy signal, higher-than-average volume and a pending golden cross (50-day moving average crossing up through the 200-day) tell us shares are likely headed higher.
My initial target is $25-plus. Traders may want to consider buying call options on the ETF to leverage the move. XLF also looks like a good long-term investment at the current price, as a way to benefit from rising interest rates and for its 2.1% yield.
Individual holdings such as WFC, BAC and JPM could also make for good investments. I plan to feature the latter two as future Trade of the Day candidates.
