Renewed Enthusiasm For A Financial ETF

The Financial Select Sector SPDR XLF, the largest exchange-traded fund dedicated to the financial services sector, rose more than 1 percent Aug. 14, posting one of its best intraday performances in several weeks.

At one point that Monday, all 69 of XLF's holdings traded higher, putting the ETF on course for its best one-day showing in roughly two months. XLF follows the Financial Select Sector Index. The ETF has been lagging broader benchmarks for much of this year. XLF is up less than 6 percent year, putting it well behind the S&P 500. 

Despite the year-to-date struggles of the financial services sector, the second-largest sector weight in the S&P 500, some data points suggest traders are still attracted to the sector and its corresponding ETFs. That includes the Direxion Daily Financial Bull 3X Shares FAS, one of the most popular leveraged sector ETFs.

What FAS Does

FAS aims to deliver triple the daily returns of the Russell 1000 Financial Services Index, which is not the same index XLF follows. The index FAS tracks is the financial sector offshoot of the widely followed Russell 1000 Index.

The index FAS follows allocates over 30 percent of its weight to bank stocks and nearly a third of its combined weight to real estate investment trusts and insurance stocks. Capital markets firms account for almost 14 percent of the FAS roster. The top 10 holdings in the Russell 1000 Financial Services Index combine for about 37 percent of the benchmark's weight. 

Well-known stocks in that group include JPMorgan Chase & Co. JPM, Wells Fargo & Co WFC and Bank of America Corp. BAC.

What Traders Think Of FAS

Much of the disappointment surrounding traditional financial services ETFs this year stems from the sector's reputation from supposedly benefiting from higher interest rates. The Federal Reserves has boosted rates twice this year and it is widely believed a third rate hike will occur before year-end, but the sector is still a laggard.

Data suggest aggressive traders are comfortable betting financials will soon shed their laggard ways. Over the past month, FAS has been one of the most popular destinations in Direxion's stable of bullish leveraged ETFs.

During that period, FAS averaged daily inflows of $1.16 million, according to issuer data. That is good for the second-best pace of asset gathering among Direxion's leveraged bullish ETFs during that period.

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