XLF's stellar year-end run: key insights & top performers

Key Points

• XLF's year-end rally was backed by a remarkable 11% climb in the last three months.
• Top holdings like Berkshire Hathaway, JPMorgan Chase & Co., and Visa continue to shine and influence the sector's path.
• As Berkshire nears a crucial point, JPM approaches its peak, and Visa eyes new highs, these top holdings could strongly steer the sector's course.

The financial sector and popular sector ETF Financial Select Sector Fund NYSE: XLF has enjoyed a stellar end to the year. A quick glance at the XLF’s daily chart almost makes it appear like the sector hasn’t experienced a red day in nearly two months.

Thanks to the recent surge in buying and impressive turnaround off its October low, the sector is now up about 10% on the year. Over the previous three months, the financial ETF is up over 11% as it looks to close the year out strong. 

The sector began its turnaround and surged higher as U.S. Treasury yields fell due to stagnant headline inflation in October's consumer-price index and positive comments made by the FED regarding further interest rate hikes.  Earlier concerns about pressure on regional banks' balance sheets from high yields eased following the decline.

A closer look at the sector and key players

The XLF is an ETF providing exposure to significant players in the US financials segment. It focuses on large banks through a cap-weighted, S&P 500-only portfolio, avoiding small-cap companies. 

Although the sector ETF appears to have gone straight up since bouncing off its October low, it is not trading in overbought territory according to its RSI, which is 67.95. As the ETF continues to base above previous resistance from earlier in the year, near $37, the sector could gather energy and potentially continue its impressive surge high if it breaks above recent highs near $37.70.

However, it’s also essential to consider and closely monitor the most heavily weighted holdings of the ETF, as they significantly impact and influence the sector ETF’s performance. So, let’s take a look at where the top holdings of the ETF are trading and what that could mean for the sector.

Berkshire Hathaway NYSE: BRK.B is the sector ETF’s top holding with a 13.04% weighting. Year-to-date, the financial giant has outperformed the sector, up over 15% and just 4.5% away from its 52-week high. The stock is trading near a critical inflection level at $360. A move through that level could signal a leg up for the stock and influence the trajectory of the overall sector.

JPMorgan Chase & Co. NYSE: JPM is the ETF’s second top holding, weighing 9.46%. And like BRK.B, it has also outperformed the financial sector, up an impressive 24.83% year-to-date. The stock has a Moderate Buy rating based on eighteen analyst ratings and a consensus price target of $168.80, predicting just a 1% upside. Shares have impressed on the quarter, up over 14%, and are now just a stone's throw away from its all-time high from 2021.

Visa NYSE: V is the third largest holding of the XLF ETF, weighing 8% and 11.8 million shares held by the ETF. Visa shares are trading in a firm uptrend, near its all-time high, and are up almost 25% year-to-date. Notably, the company has a strong dividend strength and projected earnings growth of 12.53%. Like JPM, the stock has a Moderate Buy rating based on eighteen analyst ratings and a consensus price target of $277.67, forecasting over 7% upside and new all-time highs.