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Financial Select Sector SPDRÂ (XLF)
The worst-performing sector ETF of the past 10 years and since the 1998 inception of the Select Sector SPDRs is, of course, the Financial Select Sector SPDR (XLF). Over the past 10 years, it returned 0.14% per year. Since inception, it managed to eke out 2.6% per year.
Given that the worst financial crisis since 1907 centered around this sector, it’s remarkable that its returns are positive at all!
Interestingly — and indicative of how fall the global banking giants have fallen — the largest holding in this ETF isn’t a bank at all. It’s Warren Buffett’s conglomerate Berkshire Hathaway Inc (BRK-B), which is considered an insurance company by Standard & Poor’s. Berkshire Hathaway makes up just shy of 9% of the portfolio.
Following quickly behind is one of Berkshire Hathaway’s largest long-term holdings, Wells Fargo & Co (WFC). And of course, following Wells Fargo are some of its less prudent competitors, JP Morgan Chase & Co (JPM), Bank of America Corp (BAC) and Citigroup Inc (C). Most of the rest of the portfolio is made up of smaller banks, asset managers and brokerage houses.
For the time being, XLF also has a decent-sized exposure to REITs, at about 12% of the portfolio. This is absurd, as there is no practical reason why a shopping mall landlord like Simon Property Group Inc (SPG) should ever be in the same sector ETF as Goldman Sachs Group Inc (GS).
Luckily, this anomaly won’t be around for much longer. Standard & Poor’s is giving REITs their own standalone sector, and presumably the State Street Select Sector SPDR ETFs will follow suit. (The SPDR ETFs do deviate from time to time. For example, telecom and technology, which S&P breaks into two sectors, share a single SPDR ETF.)
