Financial Select Sector ETF (XLF)

[msmithgold]

Dan Loeb's Thesis for Banks and Financials Equities

Summary of Dan Loeb's Letter

On November 8th, financials portfolio was 4.4% of the fund; one day later, it was 6%; one week later, 10.5%; one month later, 11.8%; reallocated half of initial holdings from high-multiple, FCF businesses in payments, ratings, and P&C (which traditionally outperform during periods of deflation), to more traditional reflationary exposures in banks, brokers, and geographically, in Japan
Some believe rally in financials has been driven by expectations of tax cuts, or potential repeal of Volcker Rule, or reduced compliance costs, or more relaxed capital regulations
These would bring material additional upside to bank stocks but our focus is different: pendulum in monetary policy has begun to shift away from austerity and its limiting factors; bullish for rate-sensitive financials
Rising rates have the obvious benefit of boosting net interest margins but this is particularly true today because banks are sitting on more excess cash and liquidity than ever; rising rates also unlock activity across fixed income trading
As relative policies between countries diverge, currency trading and hedging accelerates
Most will underestimate the significant operating leverage inherent in financials: expanding interest income or more velocity in trading does not require additional technology or more personnel

https://investoralmanac.com/2017/03/01/third-point-4q16-letter-reviewoutlook-financials-equities-credit-cycle/