The Financials sector (XLF) includes banks, brokers, insurance companies, real estate firms, and others.1 The cyclical sector comprises over 11% of the S&P 500, including major firms such as Berkshire Hathaway B (BRK-B), JP Morgan Chase (JPM), Bank of America (BAC), and Goldman Sachs Group (GS).2 Companies in this sector provide banking, investment, loan, credit, and other consumer services to individual clients and businesses.
The XLF index includes banks (33%), capital markets (27%), insurance (21%), diversified financial services (15%), and consumer finance (4%).3 These companies rely on mortgages, loans, debt and repayment, and securities trading for daily business operations.
XLF’s performance directly contributes to how well the economy thrives. The sector’s health often represents the overall economy’s health.4 The cyclical sector performs better in an economy with low and modestly increasing interest rates, low default rates, and loosened government financial regulations. Demand in XLF is fueled by business and individual finance activity.
Based on industry data, financial companies are subject to economic performance but also correlate with it. Financial companies are a critical backbone of the US economy. First State Investment Advisors invests in the XLF ETF for its client portfolios.
For professional financial planners, contact First State Investment Advisors at (918) 492-1361.
Sources
1Morningstar Stock Sector Structure Fact Sheet (Accessed Jan 11, 2023)
2Select Sector SPDRs XLF Snapshot (Accessed Jan 11, 2023)
3 State Street Global Advisors XLF The Financial Select Sector SPDR® Fund (ssga.com) (Accessed Jan 11, 2023)
4Investopedia: Financial Sector: Definition, Examples, Importance to Economy (Accessed Jan 11, 2023)
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.