Why Financial ETFs Are Struggling

Not a lot of folks are talking about it, but financial ETFs are struggling. While the “dollar carry trade” has encouraged investors to push big time benchmarks to 52-week highs, the SPDR Select Financial Fund (XLF) is still -6.8% below its closing high from 1 month ago.

Consider the Dow Diamonds Trust (DIA), the S&P 500 SPDR Trust (SPY) and the Nasdaq 100 proxy, the Powershares (QQQQ). Each finished the 11/12/09 week at new peaks or within spitting distance.

A similar pattern can be found worldwide. Here are the charts for Vanguard All-World ex U.S. (VEU) and Vanguard Emerging Markets (VWO).

Unfortunately for fans of financial stocks, SPDR Select Financial Fund (XLF) is showing a bit more trepidation. In fact, XLF may be the only sector that is still below a 50-day moving average.

Should we be concerned about the lone segment’s lack of conviction? Is the “correction” of 5%-7% for the broader benchmarks truly over?

Here are the 9 SPDR Select Sector Funds and their respective distances from new 52-week tops:

U.S. Sector Funds: Percent From 52-Week High (11/13/09)
					%
SPDR Select Consumer Staples				(XLP)	0.0%
SPDR Select Consumer Discretionary				(XLY)	0.0%
SPDR Select Technology				(XLK)	0.0%
SPDR Select Healthcare				(XLV)	0.4%
SPDR Select Industrials				(XLI)	0.4%
SPDR Select Materials				(XLB)	-1.6%
SPDR Select Utilities				(XLU)	-2.5%
SPDR Select Energy				(XLE)	-4.1%
SPDR Select Financials				(XLF)	-6.8%

Indeed, the only genuine area of weakness exists with financial stocks. Were it not for a few choice words — credit crisis, toxic assets, TARP, Fannie (FNM), Freddie (FRE), AIG (AIG), GM, PPIP, residential and commercial real estate defaults, foreclosures, subprime and so forth — it might be easier to dismiss. But alas, it may be wise to keep an eye on this market anomaly.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.