Financial Stocks Are Set Up for Success. Here are 5 Funds to Consider
The financial sector is hitting its stride on earnings growth and the potential for higher interest rates. These ETFs are poised to capitalize on the momentum.
Financial stocks are teed up for a good second half of the year, supported by a number of factors.
For starters, stocks in the sector reported blowout earnings in the most recent quarter. On average, quarterly earnings growth compared with the same quarter a year ago has been "strong," coming in at 18%, says Matthew Bartolini, global head of research at State Street Investment Management. That outstripped analysts' expectations for earnings growth in the quarter by more than threefold.
The specter of looming interest rate hikes (instead of cuts) is also a positive — bank stocks tend to thrive when rates rise, unlike stocks in many other sectors. And price-to-earnings multiples for financials relative to the U.S. stock market are currently at 15-year lows, says Bartolini.
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Five financial funds to consider investing in
The State Street Financial Select Sector SPDR ETF (XLF) is a diversified sector fund that holds all the financial stocks in the S&P 500, from big banks (JPMorgan Chase, for example) and capital markets companies (Goldman Sachs) to financial services firms (Visa) and consumer finance businesses (American Express).
The Invesco KBW Bank (KBWB) holds big banks, capital markets firms and some major regional banks, too. Top holdings include Bank of America, Morgan Stanley and U.S. Bancorp.
Or you could home in on big banks and capital markets firms. Among other pluses, these businesses stand to benefit from the enormous amount (reaching an anticipated $1 trillion in 2027) that analysts expect corporate America to spend on the buildout of artificial intelligence capacity.
"The AI buildout has been conducive to earnings within the financial sector — from loan growth to investment banking initial public offerings and mergers and acquisitions. All of these are financial services-related events" and are helping to boost results at big banks and capital markets firms, Bartolini says.
Bank-focused ETFs include First Trust Nasdaq Bank (FTXO) and State Street SPDR S&P Bank (KBE). Both hold stocks in big banks but have hefty stakes in regional banks, too.
The State Street SPDR S&P Capital Markets ETF (KCE) focuses on asset managers, investment banks, brokerage companies and financial exchanges, among other financial market firms.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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