US financials lead S&P 500 to record highs

Nov 29th, 2017 | By | Category: Equities

US financial stocks have helped push the S&P 500 Index to fresh highs this week. ETFs tracking the sector, such as the iShares S&P 500 Financials Sector UCITS ETF (IUFS LN), are up approximately 4.8% so far this week as the S&P 500 put on 0.9% to hit a record close of 2627.04 on 28 November.

US Financials ETFs lead S&P 500 to record highs

ETFs that track S&P US financials indices are up around 4.8% this week.

Financials were supported by comments from Federal Reserve chair Janet Yellen, who on Wednesday told Congress that the US economy was showing signs of strength. Although this was tempered with talk of gradual rate rises, the market clearly interpreted her comments as hawkish, evidenced by the jump in financial stocks which tend to perform better in higher rate environments.

Incoming Fed chair Jay Powell also lent support to the market’s expectation of a rate hike in December in a statement released on Tuesday. Financials have been on a bull run since the last Fed meeting in September – IUFS is up 11.8% since the start of September, compared to 6.2% for the S&P 500.

European investors have a number of available options to access US financials. BlackRock, State Street Global Advisors (SSGA), and PowerShares Source offer products which track S&P Dow Jones financials indices, while Deutsche Asset Management offers an ETF that tracks an MSCI financials index.

The aforementioned IUFS, from BlackRock, is the largest European-listed fund in the segment. It has assets under management (AUM) of $1.3bn and a total expense ratio of 0.15%. The Source Financial S&P US Sector UCITS ETF (XLFS LN) from PowerShares Source has $557 million and a TER of 0.30%. The SPDR S&P US Financials Select Sector UCITS ETF (SXLF LN) from SSGA has $405m and a TER of 0.15%.

Deutsche offers the db X-trackers MSCI USA Financials Index UICTS ETF (XUFN GR), which tracks the MSCI USA Financials Index. The ETF is up 4.5% this week, has AUM of $133 million, and features a slightly cheaper TER of 0.12%.

While the funds that replicate S&P indices all track slightly different indices, they are all broadly similar. The S&P indices are slightly more concentrated, with around 65 constituents compared to the MSCI index which has 91. The most significant difference between the S&P and MSCI indices appears to be the inclusion of Berkshire Hathaway in the S&P indices, which is the largest holding with approximately 11% of the portfolio weight. The stock does not appear in the top 10 holdings of the MSCI index.

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