Tuesday, September 30, 2008


Yes. It is true. When the markets fell like a rock yesterday, the average financial stock went down less than the average energy or basic material stock. Today, when the market is up strong, the financial sector is the leader. The turn is here.

A reader wants to know if a sector fund such as the XLF is the way to "play". Before several buy out consolidations go through, the weight of the top four stocks held are JPM 10.6%, BAC 9.7%, WFC 7.7% and C 6.8%. If you don't mind paying a annual fee for holding these stocks, then the XLF is a decent way to buy into the "big boys". When ever you buy whole sectors, you buy the "see" and the "saw" within the sector. There are other more "pure" funds that track banks, regional banks, capital markets, insurance and more.

As always, 90% of performance is being in the right sector. However, the smaller companies have a much higher beta and they will be the big winners in the months ahead. An equal weighted index will do much better than a cap weighted index such as the XLF during a strong run.

The fees on exchange traded funds range from about a quarter percent to as much as 2% per year. The XLF carries a low fee of .23%. There is no fee for holding individual shares.