Investors are fleeing the largest exchange-traded fund tracking US financial stocks at the fastest monthly pace on record, having withdrawn more than $3.5 billion from it through December 24.Outflows from the $21 billion Financial Select SPDR Fund, or XLF, are driving the record $9.2 billion thats been pulled from all ETFs tracking financials this year.Traders have also been closing out their bets in the $2.7 billion SPDR SP Regional Banking ETF, which tracks an equal-weighted portfolio of banks stocks.
XLF is more diversified, with 49 per cent of its holdings in banks, and about 32 per cent in insurance companies.Financials are the worst performing among 11 SP 500 industry groups in December, falling 16 percent in the midst of pressures ranging from disappointing loan growth to a flattening yield curve to slowing global growth.
The KBW Bank Index is down 19 per cent this month and is on track for a 21 per cent decline this quarter, which would be its worst since a 27 per cent decline in the three months ended September 2011.As of Monday, XLF had logged almost three weeks of lower consecutive closing days, said Josh Lukeman, head of ETF market making for the Americas at Credit Suisse Group AG.Youd have to go back to the beginning of 2016 to find a similar free-fall, he said.
With the Street worried about a flattening yield curve among other things lately, and what an inversion could mean for the economy in the future, the financials and XLF have borne the brunt of relentless selling pressure.The weakness in banks comes amid a broader market rout thats seen waves of selling chop $5 trillion off US equity values in three months.