5 Financial ETFs To Buy On Taper Talks

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Minutes from the July Federal Reserve meeting indicates the tapering is in the cards. This is especially true as the central bank is planning to scale back its massive monthly bond purchases before the end of the year. Inflation remains high over the past several months, bolstering the support for the earlier-than-expected tapering.

The central bank is currently buying $80 billion worth of Treasury securities and $40 billion worth of mortgage-backed securities per month to drive down longer-term interest rates and spur economic growth. The shift toward a tighter monetary policy will push the yields higher, thereby benefiting the financial sector. This is because rising rates will expand profits for banks, insurance companies, discount brokerage firms and asset managers. As the financial institutions seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will lead to earning more on lending and paying less on deposits, thereby creating a wider spread.

Additionally, the combination of some other factors bodes well for the financial sector. The U.S. economy returned to the pre-pandemic level with GDP rising 6.5% annually in the second quarter, indicating the sustained recovery from the pandemic recession. Rapid vaccinations, business reopenings, and trillions of dollars of government stimulus spending powered consumer spending and resulted in robust growth. These will lead to higher demand for loans and all types of financial services.

If the economy continues to recover, the loan growth is expected to bounce back strongly in the coming quarters. Further, higher oil prices are acting as catalysts given that most banks are highly exposed to the energy sector.

Moreover, the upside to the finance sector is confirmed by the Zacks Sector Rank in the top 32%, which suggests outperformance in the coming months.

Given this, investors should tap the bullishness in the sector via ETFs. While there are a number of ETFs in this corner of the market, we have highlighted five funds from different industries that have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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