GICS Sector: Rate-Sensitive ETFs Remain in Focus



Financials: Large outflows driven by tumbling yields

The Financial Select Sector SPDR ETF (XLF) was once again the center of attention during last week’s trading. Even though XLF managed to post a weekly gain of ~3.0%, investors continued to pull out large amounts of cash, leading to a sizable ~$1.6 billion in outflows.

As such, the rate-sensitive ETF saw the largest outflows among the GICS (Global Industry Classification Standard) sector ETFs on a weekly basis. But it was also the biggest fund flow loser in the first half of 2016. The most important fund-flow driver for financials remains the never-ending race to zero in yields around the world. And that’s unlikely to change in a post-Brexit world.

Market participants continued to park their money in safe-haven U.S. Treasury bonds. That pushed ten-year yields violently below the psychologically important 1.5% level.

Going into the second half of 2016, the outlook for the financial sector remains grim. That doesn’t bode well for bank ETFs, including the SPDR S&P Bank ETF (KBE) and the SPDR S&P Regional Banking ETF (KRE).

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Utilities continue to be fashionable

The same things that caused outflows in XLF led to fund inflows of ~$170 million into the Utilities Select Sector SPDR ETF (XLU). The ETF saw the largest inflows among GICS-sector ETFs last week. It also finished the first half of 2016 in first place.

The safety of utility companies together with higher dividend yields caused investors to buy into the ETF once again. Notably, XLU is continuing to see fund inflows as well as new highs. Last week was no exception. The ETF rose ~3.7%, clearly trading above the important $50 level.

In the final part of our series, we’ll look at category ETFs.


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