Taking a look at the ETF, the first thing you want to do is look at what the fund holds and dissect the top few holdings to gain an understanding of their health. If you want to be extra careful, look at the top 10 holdings. After you’ve looked at the holdings, you can begin looking at the larger picture to better understand where these individual companies are headed, which will have a pull on the ETF. All of these work together in determining the direction of the ETF as a whole.
Now, taking a look at the chart using the monthly time frame, we can see that price is approaching the pre-recession highs. Now, you have to look at the sector as a macro picture and micro. The micro will be achieved when you look at the top holdings of the ETF, but the macro is the economic conditions such as interest rates and the strength of the dollar. Using those can determine where the stock could continue to go, but it is not as straight forward as a normal equity.
Typically, a company's
financial statements are the reports that show the
financial position of the company. There are three main documents that fall into the category of financial statements. These documents include Financial Select income statement, its balance sheet, and the statement of cash flows. Potential Financial Select investors and stakeholders use financial statements to determine how well the company is positioned to perform in the future. Although Financial Select investors may use each financial statement separately, they are all related. The changes in Financial Select's assets and liabilities, for example, are also reflected in the revenues and expenses that we see on Financial Select's income statement, which results in the company's gains or losses. Cash flows can provide more information regarding cash listed on a balance sheet, but not equivalent to net income shown on the income statement. Please read more on our
technical analysis and
fundamental analysis pages.
Risks
There certainly are risks with an ETF and you can gather more information from the perspicuous the company provides. For now, here are a couple risks to keep in mind before investing in this ETF. First, the fund is made up of many different individual equities, so the underlying health of those companies can influence the ETF. Secondly, this is sector specific so the overall market might be doing well, but this particular sector could be doing poorly, so understand the business cycle and how each sector reacts during the different times.
Conclusion
Overall, ETF’s are a great product because you can capture a sector move without purchasing individual equities, which can limit risk a bit. However, you still need to complete your own homework because it can behave differently then the market as a whole. Be sure to take a look at your portfolio and fully understand if you can handle the risk this may bring, and if you still have questions after, consult an investing professional and they can help you point you in the right direction. Certainly take the time to get to know these products because they can be a great accent.
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Try AI Portfolio ArchitectNathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
View Profile This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Nathan Young do not own shares of Financial Select Sector. Please refer to our
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