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4 Leveraged Financial ETFs to Buy on Fed and Trump
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President Trump’s first address to the Congress swept Wall Street off its feet, with the three key equity gauges gaining over 1.35% on March 1, 2017. Seven of the 11 major S&P sectors registered more than 1% returns, while the S&P financial index saw a stellar 2.84% gain.
Several financial ETFs hit a 52-week high on the day with Financial Select Sector SPDR ETF (XLF - Free Report) touching its highest level since December 2007. The President’s promise of repealing the 2010 Dodd-Frank financial law – one of the regulations undertaken in the height of the 2008 financial crisis – is one of the encouraging factors for financial companies (read: Play Banking Bonanza with These ETFs in Trump World).
The focus of the law was to cut back on uncontrolled lending and avoid the situation where tax-payers’ money is needed to bail out large financial institutions. The Act increased the operating expenses of financial institutions given the rise in compliance costs. Further, stringent capital requirements led banks to curb investments. Now, since days of increased regulatory scrutiny seem to be phasing out, financial stocks are performing at peak levels.
Coming to the Fed, several presidents signaled a rate hike within just two weeks thanks to a pickup in inflation and other upbeat economic indicators in the areas of jobs and housing. This along with higher inflationary expectations from Trump’s fiscal reflation pushed Treasury yields higher (read: Will Trump & Fed Make 2017 a Year of Financials ETFs?).
Benchmark 10-year U.S. Treasury bond yields climbed to 2.46% on March 1 from 2.36% the day earlier while the yield of two-year Treasury notes spiked to 1.29% on March 1, 2017 from 1.22% recorded on February 28. A rising interest rate scenario is highly favorable for the financial sector as this enhances companies’ net interest margin.
Plus, major banks came up with strong earnings reports in the latest reporting cycle, making the path clearer for banking ETFs to outperform. While an impressive 16.6% earnings growth was recorded, 74.4% of companies beat on the bottom line (higher than 68.4% beat ratio of the S&P 500 index), as per the Earnings Trend issued on March 1. These financial companies saw revenues growing 6.2%, and 55.6% of these beat on the top line (read: Play Positive Surprise with These Sector ETFs).
Major banks recorded a 12.5% expansion in earnings while Banks & Thrifts reported a 23.7% surge in earnings. Insurance companies saw earnings growth of 26.6% and investment banks’ earnings grew 15.9%.
ETFs to Buy
Financial ETFs including XLF, PowerShares KBW Bank Portfolio (KBWB - Free Report) and iSharesDow Jones U.S. Financial Services Index Fund (IYG - Free Report) ,each carrying a Zacks Rank #1 (Strong Buy), are always there to cash in on the booming trend. However, investors can earn more from this surge by targeting leveraged financial ETFs.
Banking on all the positives elucidated above, below we highlight a few leveraged investment choices. All these leveraged financial ETFs hit a 52-week high on March 1, 2017. However, we would like to note that leveraged ETFs are highly volatile in nature. Their performances could vary significantly from the actual performance of their underlying index over a longer period. Thus these good tools for short-term plays (see all leveraged ETFs here).
This $20.4-million fund seeks to deliver thrice the return of the S&P Regional Banks Select Industry Index, charging 96 bps in fees per year.
ProShares UltraPro Financial Select Sector
FINU provides three times (3x) exposure to the daily performance of the S&P Financial Select Sector Index. Expense ratio is 0.95%. The fund has raked in about $19 million in assets.
This fund seeks two times (2x) leveraged exposure to the Dow Jones U.S. Financials Index, charging 95 bps in fees. It has amassed $791 million in its asset base.
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4 Leveraged Financial ETFs to Buy on Fed and Trump
President Trump’s first address to the Congress swept Wall Street off its feet, with the three key equity gauges gaining over 1.35% on March 1, 2017. Seven of the 11 major S&P sectors registered more than 1% returns, while the S&P financial index saw a stellar 2.84% gain.
Several financial ETFs hit a 52-week high on the day with Financial Select Sector SPDR ETF (XLF - Free Report) touching its highest level since December 2007. The President’s promise of repealing the 2010 Dodd-Frank financial law – one of the regulations undertaken in the height of the 2008 financial crisis – is one of the encouraging factors for financial companies (read: Play Banking Bonanza with These ETFs in Trump World).
The focus of the law was to cut back on uncontrolled lending and avoid the situation where tax-payers’ money is needed to bail out large financial institutions. The Act increased the operating expenses of financial institutions given the rise in compliance costs. Further, stringent capital requirements led banks to curb investments. Now, since days of increased regulatory scrutiny seem to be phasing out, financial stocks are performing at peak levels.
Coming to the Fed, several presidents signaled a rate hike within just two weeks thanks to a pickup in inflation and other upbeat economic indicators in the areas of jobs and housing. This along with higher inflationary expectations from Trump’s fiscal reflation pushed Treasury yields higher (read: Will Trump & Fed Make 2017 a Year of Financials ETFs?).
Benchmark 10-year U.S. Treasury bond yields climbed to 2.46% on March 1 from 2.36% the day earlier while the yield of two-year Treasury notes spiked to 1.29% on March 1, 2017 from 1.22% recorded on February 28. A rising interest rate scenario is highly favorable for the financial sector as this enhances companies’ net interest margin.
Plus, major banks came up with strong earnings reports in the latest reporting cycle, making the path clearer for banking ETFs to outperform. While an impressive 16.6% earnings growth was recorded, 74.4% of companies beat on the bottom line (higher than 68.4% beat ratio of the S&P 500 index), as per the Earnings Trend issued on March 1. These financial companies saw revenues growing 6.2%, and 55.6% of these beat on the top line (read: Play Positive Surprise with These Sector ETFs).
Major banks recorded a 12.5% expansion in earnings while Banks & Thrifts reported a 23.7% surge in earnings. Insurance companies saw earnings growth of 26.6% and investment banks’ earnings grew 15.9%.
ETFs to Buy
Financial ETFs including XLF, PowerShares KBW Bank Portfolio (KBWB - Free Report) and iShares Dow Jones U.S. Financial Services Index Fund (IYG - Free Report) ,each carrying a Zacks Rank #1 (Strong Buy), are always there to cash in on the booming trend. However, investors can earn more from this surge by targeting leveraged financial ETFs.
Banking on all the positives elucidated above, below we highlight a few leveraged investment choices. All these leveraged financial ETFs hit a 52-week high on March 1, 2017. However, we would like to note that leveraged ETFs are highly volatile in nature. Their performances could vary significantly from the actual performance of their underlying index over a longer period. Thus these good tools for short-term plays (see all leveraged ETFs here).
Direxion Daily Regional Banks Bull 3x Shares (DPST - Free Report)
This $20.4-million fund seeks to deliver thrice the return of the S&P Regional Banks Select Industry Index, charging 96 bps in fees per year.
ProShares UltraPro Financial Select Sector
FINU provides three times (3x) exposure to the daily performance of the S&P Financial Select Sector Index. Expense ratio is 0.95%. The fund has raked in about $19 million in assets.
Direxion Daily Financial Bull 3x Shares ETF (FAS - Free Report)
This $1.33-billion product also provides three times exposure to the Russell 1000 Financial Services Index. Though it charges annual fee of 97 bps.
ProShares Ultra Financials (UYG - Free Report)
This fund seeks two times (2x) leveraged exposure to the Dow Jones U.S. Financials Index, charging 95 bps in fees. It has amassed $791 million in its asset base.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>