The financials sector rallied in trading on Monday, led by U.S. regional bank stocks surging on efforts to stabilize the banking sector.
U.S. regional bank stocks jumped in early trading Monday as investors celebrated news from the Federal Deposit Insurance Corp, which announced First Citizens is purchasing the remaining assets, deposits, and loans of Silicon Valley Bank, the first U.S. bank to fail earlier this month.
The Invesco S&P 500 Equal Weight Financials ETF (RYF) is up over 1.2% in midday trading on Monday as bank stocks rally. The fund was up around 5% year to date through February, buoyed by investors recognizing banks may be a safe haven in the rising rate environment, as net interest margins could improve. RYF then declined sharply in March on news of bank failures, clawing back all gains. The fund is down 13.5% year to date as of March 24, presenting a good entry point for investors.
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RYF is a strong offering to consider for investors looking to overweight the financials sector. RYF offers focused exposure to the sector while limiting concentration risk by utilizing an equal-weight methodology.
Constituents in RYF receive equal weights at each quarterly rebalance, effectively instituting an anti-momentum effect by selling relative winners and buying relative losers at each rebalance.
As a result, RYF maintains considerably lower concentration than most financial ETFs, as exposure is spread around evenly as opposed to being concentrated among a handful of mega-cap stocks. This enhances the diversification of a portfolio’s financials exposure and limits concentration risk.
RYF holds 75 securities as of March 24, according to ETF Database. Holdings include MarketAxess Holdings Inc (MKTX), Cboe Global Markets Inc (CBOE), BlackRock Inc (BLK), Aon Plc (AON), and Marsh & McLennan Companies Inc (MMC).
RYF charges 40 basis points and has $317 million in assets under management.
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