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XLF’s Large Caps Outperform Small Caps: Are Investors Nervous?

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Jun. 15 2016, Updated 12:05 p.m. ET

Market-cap analysis

Larger-cap stocks, or those with a market cap above $10 billion, make up 87.3% of the Financial Select Sector SPDR Fund (XLF). These stocks have fallen 3.3% in the last year and fell 1.1% last week. In comparison, the broad-based SPDR S&P 500 ETF (SPY) lost 0.1% during the week. Small- and mid-cap stocks, which have a market cap of less than $10 billion, underperformed large-cap stocks last week and lost 2.1%.

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During the past year, they have underperformed large caps and plunged 13.6%. The underperformance of small caps relative to large companies during the year hints at vulnerability in the broader Market. The sense is that investors choose to stay with large caps as they are safer bets amid uncertain global conditions.

Market-cap analysis of subgroups

Large-cap banking stocks make up 47% of XLF’s portfolio. These stocks have fallen 15.4% over the last year, while small-cap banking stocks have fallen 13.5%. In comparison, large-cap diversified financial services stocks have lost 8.9% over the last year, while small-cap diversified financial services stocks have lost a whopping 29.8%.

Last week, large-cap banks lost 2.3%, while small-cap banks lost 2.9%. In comparison, large-cap and small-cap diversified financial services stocks lost 2.4% and 4.4%, respectively. Stocks like Public Storage (PSA), Affiliated Managers Group (AMG), and Invesco (IVZ) led the losses in XLF last week. These stocks fell 7.1%, 6.9%, and 6.5%, respectively.

In the next part of this series, we’ll discuss how investors traded banking stocks ahead of the Federal Open Market Committee meeting this week.

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