XLF’s Top Holdings Constitute 49% of Its Portfolio



XLF’s largest holdings

The Financial Select Sector SPDR ETF (XLF) is an ETF that seeks to generate returns corresponding to the S&P Financial Select Sector Index.

The index is constructed by taking into consideration multiple fundamental measures. Wells Fargo (WFC), Bank of New York Mellon (BK), JPMorgan Chase (JPM), Bank of America (BAC), and Crown Castle International (CCI) are some of its top holdings. These have weights of 8.7%, 8.5%, 8.1%, 5.8%, and 5.5%, respectively. XLF’s top ten holdings make up ~49% of its portfolio, making it very concentrated.

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Why has XLF underperformed the market?

Weak global cues coupled with the uncertainty of a potential interest rate hike have taken a toll on the financial sector during the year. Despite robust fundamentals and an increasing loan book, US banking stocks have been unable to outperform. XLF’s top ten holdings have returned 0.8% on average year-to-date (or YTD).

XLF has generated returns of -1.9% in 2015 so far and has underperformed the broader market, represented by the S&P SPDR ETF (SPY). SPY has returned 0.9% YTD. The potential rate hike could be a positive catalyst driving returns in the financial sector and therefore in XLF.

Wells Fargo, XLF’s highest-weighted stock, has returned -0.5% during the year, while Bank of America has returned -3.9% during the year. However, Bank of New York Mellon and JPMorgan Chase have generated positive returns of 5.2% and 4.8%, respectively, YTD.

Among XLF’s top ten holdings, Assurant (AIZ) has grossly outperformed with returns of 20% YTD, while All State has been the worst performer with returns of -11.2%.


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