US-based financial stocks are seeing an uptick in both inflows and returns as experts reckon financial-focused ETFs are a good bet in the short term.
ETFs tracking financial stocks are up more than 9% over the last month and have gained around $1.8 billion over that period, reversing mostly choppy returns throughout 2017.
The sector is set to gain further thanks to political reforms and positive economic fundamentals next year.
Financial reforms bring boost
Analysts say that capital buffers at US banks are stable, and Donald Trump’s new $1.5 trillion tax reform plan could act as a boost to financials in the short term, whether those reforms are fully implemented or if they have a positive impact when they are rolled out. The reforms are the largest in 30 years, including slashing corporate tax from 35% to 21%.
Mark Tepper, CEO of Strategic Wealth Partners, told CNBC that “banks are in the best position” to benefit from tax reform and a continued rise in interest rates. At least three hikes in rates are anticipated in 2018 after the Federal Reserve raised rates by 25 basis points at its December meeting.
Furthermore, financials are one of the few sectors, if not the only one, that is relatively attractively valued – about 25% less than its average since the early 1990s – when looking at the broad market.
Financial ETF giant
The largest ETF in the sector is the Financial Select Sector SPDR ETF (XLF) with close to $33 billion assets under management.
It has gained around 20% in USD terms so far this year, slipping past healthcare and consumer discretionary ETFs in terms of performance. XLF costs 0.14% in annual fees, and its top three exposures are to banks, capital markets and insurance sectors.