XLF Has Big Downside Risk

2025-06-03 16:10:09 ET

Summary

• I rate XLF a Sell due to concerns about valuation, sector risks, and recent outperformance versus the broader market.
• Financials face significant risks from inflation, higher interest rates, and potential recession, despite some positive catalysts like possible deregulation.
• XLF's performance has been driven by a handful of large holdings, while the rest of the ETF is similar to the overall market return.
• For those concerned, I suggest reducing exposure to large Financials, shorting XLF, and exploring opportunities in small-cap stocks.

Financials are a large part of the S&P 500, currently at 14.3%. Select SPDR ETFs break the S&P 500 into the eleven sector index funds, including Financials ( XLF ), which holds 73 stocks and has $49.5 billion in assets under management. At Seeking Alpha, 74K follow the ETF, making it the second most followed of the eleven ETFs offered by SPDR:

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