Hedge Against Higher Interest Rates With Bank Stocks
The firms in Financial Select Sector SPDR benefit from an improving economy.
Investors have been wringing their hands for months over expectations of higher interest rates. But at least one sector stands to profit in such an environment: banks. That’s because higher rates signal a stronger economy, which comes with improved consumer demand for financial products, such as mortgages and small-business lines of credit, says Dave Mazza, head of exchange-traded-fund research at SPDR.
Consider Financial Select Sector SPDR ETF (XLF). The fund tracks the Financial Select Sector index—one of the nine indexes that represent major economic sectors of Standard & Poor’s 500-stock index. The fund holds a diversified but highly concentrated portfolio of 85 stocks weighted by market value. Its top 10 holdings, most of which are big banks such as JPMorgan Chase ( JPM )and Wells Fargo (WFC), represent nearly 50% of the fund’s assets. The ETF charges annual fees of 0.16%, or 63% less than the average expenses of financial-sector ETFs.
Risk comes with the territory when you invest in financial stocks. The ETF got crushed in 2008 (down 55%) and in 2011 (down 17%). But take heart. The big banks that torpedoed the fund in the past have cut expenses, shored up their balance sheets and settled many of their legal problems. What’s more, the financial sector as a whole looks strong and stable. After a tough 2014, analysts expect earnings growth at financial firms to outpace that of the broad market next year, according to S&P Capital IQ.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Ryan joined Kiplinger in the fall of 2013. He wrote and fact-checked stories that appeared in Kiplinger's Personal Finance magazine and on Kiplinger.com. He previously interned for the CBS Evening News investigative team and worked as a copy editor and features columnist at the GW Hatchet. He holds a BA in English and creative writing from George Washington University.
-
25 Financial Moves to Consider Before December 31
Tidying up your financial house before the New Year kicks off will put you in a great position to have a financially satisfying and successful 2025.
By Jonathan I. Shenkman, AIF® Published
-
Five Side Hustles You Could Turn Into a Full-Time Business
You might be able to capitalize on your expertise in ways you haven't thought of, possibly even leading to quitting your 9-to-5 job to do what you love.
By Anthony Martin Published
-
The 5 Best Actively Managed Fidelity Funds to Buy Now
mutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
By Kent Thune Last updated
-
The 12 Best Bear Market ETFs to Buy Now
ETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
By Kyle Woodley Published
-
Don't Give Up on the Eurozone
mutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
By Rivan V. Stinson Published
-
Best Bond Funds to Buy
Investing for Income The best bond funds provide investors with income and stability – and are worthy additions to any well-balanced portfolio.
By Jeff Reeves Last updated
-
Vanguard Global ESG Select Stock Profits from ESG Leaders
mutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
By Rivan V. Stinson Published
-
Kip ETF 20: What's In, What's Out and Why
Kip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
By Nellie S. Huang Published
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.
Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
By Nellie S. Huang Published
-
Do You Have Gun Stocks in Your Funds?
ESG Investors looking to make changes amid gun violence can easily divest from gun stocks ... though it's trickier if they own them through funds.
By Ellen Kennedy Published