Largest Bank ETF Bled Cash Leading Up to the Fed Meeting

(Bloomberg) -- A strong performance by banks last month didn’t stop investors from yanking cash from the largest exchange-traded fund tracking U.S. financial institutions.

State Street Corp.’s Financial Select Sector SPDR Fund, known as XLF, had $689 million of outflows Tuesday, the most since January. The fund is basically flat for the year, mirroring the performance of banks in the S&P 500 Index, but it’s down almost 5 percent from its 2018 high, reached in January. So heading into Wednesday’s Federal Reserve meeting, investors may have felt skittish about holding the ETF.

“Despite the wildly bullish rhetoric surrounding the bank stocks lately, they still have a lot to prove if they are finally going to break out of the funk they’ve been in all year,” Matt Maley, equity strategist at Miller Tabak & Co., wrote in a note to clients Wednesday.

The outflows from the fund also may have represented short-term trades in response to yesterday’s bond rally, according to Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co. XLF shot up more than 1 percent Wednesday morning after U.S. bonds sold-off Tuesday night. But it retreated as the Fed decision neared and was essentially unchanged of 2:13 p.m., shortly after central bankers announced they were keeping interest rates stable.

--With assistance from Sarah Ponczek and Tom Lagerman.

To contact the reporters on this story: Olivia Schaber in New York at oschaber1@bloomberg.net;Carolina Wilson in New York City at cwilson166@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Andrew Dunn

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