Financial Select Sector SPDR Fund (XLF)

(A Top Pick February 22/18 Down 2%) He sold it in early April when the seasonal trend peaked. Rising interest rates has not been benefitting the financial sector as would normally be the case – measured as under-performing the broad market index. He feels the narrative is changing. Technically it does not look good to him. He would not be here now.

XLY-US or XLF-US? January saw massive gains in the U.S., which was too much, too soon. So, he pulled back and held a lot of cash. Then, in early-Feb he bought both ETFs. He recommends buying both right now.

HFU or XLF? A double-leveraged ETF (HFU) carries more risk that isn't present in a single-leveraged one. Be careful with these. Not for long-term investors. Generally. If long-term, stick with a plain vanilla ETF instead of the double-leverage one.

(A Top Pick Sept. 25/17, Up 17%) There are three drivers of U.S. banks. One is de-leveraging is done with corporations and household both in great shape. Two, U.S. bank de-regulation and, three, are interest rates are rising. All are tailwinds for the U.S. economy.

US Banks primarily. The banks take your money in and lend it out at a higher rate. Rising 10-year rates help that. They have a seasonal period until mid-April.

This one has all the big U.S. banks. About 49% U.S Banks, 30% insurance companies, also, and about 10% Berkshire. It really represents the heavyweight in the U.S. financial sectors and he thinks they are going to do very well. Obviously not just because of the tax cuts, but because of Dodd-Frank and also with increasing interest rates they are going to get better net interest margins. Lots of reasons to like the U.S. banks.

This has to do with the US tax deregulation and the potential for a higher interest rate spread.

The pillars of Trump’s platform had infrastructure, lower taxes and reduced regulations. It is pretty clear that infrastructure and lower taxes is going to be, if ever, some time in the future. However, reduced regulations is something that can be done. They said that regulations don’t necessarily have to change the laws, they just have to reinterpret existing laws. Trump’s overall impact on the global economy won’t be as large as people had thought, but his sectorial impact will be massive. Banks are incredibly under owned and under loved, and extremely oversold.

He is very positive on the banks. This gives you more diversification than owning the individual banks. If they make changes to the Dodd Franks, where they seem to be moving, that would be good. Also, higher interest rates are very good for banks. This is not a bad investment.

He was looking to buy ZUB-T when it was testing multi-month rallies. This rally is about expected rate hikes from the Fed and he expects they are over. He would sell into strength on the banks.

The US financials have lagged the market over the last few years. They are now trading at a massive discount. This is a long term theme that he thinks is very interesting. If Trump reduces regulation, then US banks should get up to the level of the Canadian banks. He thinks the Fed is way behind in rising interest rates.

(Top Pick Dec 13/16, Up 4.03%) This happened outside his window of seasonal strength by more than a month. He got stopped out back in January. We need another move up, otherwise the rally is over.

A good sector to be in over the next few months. There may be some back filling along the way. A lot of relief has been coming into the sector expecting the regulations.

He has been overweight the financial sector through this ETF. You don’t want to be a contrarian here. Trump is engineering animal spirits. Capital spending will start to happen and you want to be in banks during this period. He likes it and is long.

Conditions are ripe for the US banks. His 1^st attraction to the banking sector was when he started noticing that on conference calls, the CEO’s on some of the big names weren’t having conversations about litigations anymore and the ghosts of 2008. A steeper yield curve is going to help the situation. Be patient on this.