Is Goldman Sachs Reheating Financial ETFs After Earnings Beat?

The global investment firm topped expectations on earnings per share ($17.55 actual versus $16.49 expected) and revenue ($17.23 billion actual versus $16.97 billion expected). A resurgence in global dealmaking and profitable equities trading drove Goldman’s results, which could entice prospective investors looking at the financials sector.

In the higher-for-longer rate environment, the sector saw money exit during the month of March according to monthly flash flows data from State Street Investment Management (SSIM). However, positive earnings from the likes of JP Morgan, Citigroup, Wells Fargo, and Bank of America could help paint a rosier picture moving forward.

• Goldman Sachs defied a 69% surge in market volatility to deliver a double-beat on earnings and revenue, driven by a powerful resurgence in global investment banking and equities trading.

• The firm’s $17.55 EPS outperformance signals a high-velocity recovery in dealmaking, providing a bullish macro indicator for the broader financial sector despite “higher-for-longer” rate pressures.

• Investors can capture this momentum through high-conviction plays like IAI, which carries a massive 18% weighting in Goldman Sachs, or diversify via the industry-standard XLF.

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If earnings beats from Goldman Sachs and its peers can translate into positive momentum for the sector, here are three ETFs that are representative of financials:

1. Financial Select Sector SPDR Fund (XLF A): Though the fund doesn’t have the highest allocation to Goldman Sachs (3.76% as of April 10), this is the industry standard for U.S. financial exposure. The fund tracks the Financial Select Sector Index, which includes Goldman along with its aforementioned peers — key components of the S&P 500 Financials Index. With an expense ratio of just eight basis points, it’s a cost-effective solution to broad financials exposure.

2. iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI B-): Alternatively, this fund does have the highest allocation to Goldman Sachs (over 18%). While XLF includes names in the broader banking industry like Wells Fargo and Bank of America, IAI offers a more concentrated play on the capital markets. That said, Goldman Sachs typically holds a top position in this fund alongside peers like Morgan Stanley and Charles Schwab. Accordingly, this fund will have greater sensitivity to revenue from investment banking and trading activities.

3. Invesco KBW Bank ETF (KBWB B): This fund targets primarily large national as well as regional banks. While KBWB includes commercial lenders, the fund does have an 8% allocation (as of April 10) to the stock, which can oftentimes act as a bellwether for the entire large-cap banking industry.

When it comes to heaviest weightings in Goldman Sachs, here are the top five ETFs based on data from ETF Database:

See More: State Street Now Distributor for Select Sector SPDR ETFs

Although all eyes will be on tech earnings later in the month, financials can still provide insight on the broader economy. Strong investment banking activity suggests that CEOs are still inclined to put capital to work even in this higher-for-longer rate environment.

Geopolitical tensions will still roil the markets with volatility, which means investors will have to approach the financial sector with discipline. Consequently, it’s how Goldman Sachs will operate for the remainder of the year.

“Goldman Sachs delivered very strong performance for our shareholders this quarter, even as market conditions became more volatile,” said Goldman Sachs CEO, David Solomon. He added that the “geopolitical landscape remains very complex – so disciplined risk management must remain core to how we operate.”

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