A year into the credit crunch, the market seems to be a little bit more discerning about financials than at an earlier stage.The weakest have fallen a whole lot, and the strongest much less.Lehman is down to #43 on the list, for example, and Freddie Mac is now #80.One interesting side effect of this is that the cap-weighted financialsindices, such as one might purchase as XLF, now have a much bettertilt towards the strongest firms than they once did, and mightmake a pretty good cyclical purchase at this point.The largest holdings in descending order are now:BAC (8.29%)JPMCWFC (5.85%)GSUSB (3.31%)AIG (3.30%)AXP (2.76%)MSBK (2.38%)MERMETPRUWBSTT (1.74%)AFLTRVALLPNCCMEThe percentages are the weights within XLF, and are given for some ofthe firms about whom something nice might be said by at least some people.In short, it's not as scary as you might think. It's not overstuffedwith Bear Stearns, Lehman, Freddie Mac and WaMu. Not any more!Though it no doubt it still contains some nearly worthless firms, they probably don't dominate. The sector as a whole will not go to zero, andwill probably be priced a lot more richly in a few years' time.I'd actually recommend this a potential entry for someone planninga multiyear hold until the financials are again inside the pale,but who isn't entirely comfortable doing their own due diligenceon individual financial companies. The value of the ETF should track loosely the aggregate value of the whole sector, as it's supposed to.XLF is at 21.11 at the moment, but give its jaggedness lately there'sa good chance one can yet pick it up in the $20.00 range.Of course, it will require patience and the nerve not to sell onthe panics yet to come.A fabulous investment? Nope.But, it should outperform most stuff between now and the nextcyclical valuation top for financials in a few years.Jim
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