A surprisingly hawkish Federal Reserve sent a wave of cash into financial exchange-traded funds, which stand to benefit from rising interest rates.

Investors poured roughly $1.7 billion into bank ETFs on Wednesday, with State Street’s SPDR S&P Regional Banking (ticker KRE) notching a record inflow of $932 million, according to data compiled by Bloomberg. The $4 billion SPDR S&P Bank ETF (ticker KBE) had its biggest intake since March, while the $44 billion Financial Select Sector SPDR Fund (ticker XLF) lured the most cash in a month.

The influx followed the U.S. central bank’s June meeting as policy makers projected two rate increases by the end of 2023 -- earlier than anticipated just six weeks ago. That’s a boon for banks, given how closely tied the industry’s shares are to Treasury yields. While an S&P 500 gauge of financial companies fell on Thursday, analysts said the Fed’s hawkish tilt may still bode well for the sector.

“I’m not surprised to see money flowing into those when you have the Fed expressing surprise that inflation is picking up faster than they expected,” said Bob Phillips, managing principal at Spectrum Management Group. “If you expect rates to take off, that’s a natural place to allocate your money.”

Financial ETFs have absorbed over $25 billion so far this year, after taking in $2.2 billion in 2020, Bloomberg Intelligence data show. The bulk of last year’s inflow came after November, when a flurry of coronavirus vaccine breakthroughs lifted Treasury yields as well as value sectors like banks and energy amid optimism about an economic reopening.

Of course, 2023 is a long way off, and the U.S. economy has yet to fully recover from the pandemic hit. That risk was on display Thursday, when a bigger-than-expected jump in unemployment benefits filings sent 10-year Treasury yields lower. Still, the direction of travel in the Fed’s projections should benefit banks, according to Moors & Cabot Inc.

“It isn’t the start date per se that triggered the flows, but rather the rate-of-change of the movement. In other words, if they were saying 2024 then, and now they are saying 2023 now, is 2022 next?” said James Pillow, a managing director at the firm. “Either way, financials love the new pace.”

Following are KRE’s biggest holdings as of June 16:

Name	Ticker	Position	Value (USD)	Change in Position	% of Total Asset Value
Signature Bank	SBNY US Equity	471,776	121.9 million	-3,410	2.3
First Republic Bank	FRC US Equity	652,932	121.8 million	-4,730	2.3
Citizens Financial Group Inc.	CFG US Equity	2.5 million	119.8 million	-18,117	2.3
Sterling Bancorp	STL US Equity	4.57 million	119.6 million	-33,132	2.3
Comerica Inc.	CMA US Equity	1.6 million	119.5 million	-11,594	2.3
PNC Financial Services Group I	PNC US Equity	628,389	119.5 million	-4,543	2.3
Fifth Third Bancorp	FITB US Equity	2.92 million	118.3 million	-21,076	2.2
SVB Financial Group	SIVB US Equity	207,289	117.5 million	-1,507	2.2
First Horizon Corp.	FHN US Equity	6.44 million	117.4 million	-46,684	2.2
KeyCorp	KEY US Equity	5.34 million	116.7 million	-38,698	2.2

If you would like to use Bloomberg’s ETF screening applications, click here or type ETF <GO>. To explore Bloomberg’s ETF Excel library, click on XLTP XETFM <GO>. You can find the Bloomberg Intelligence ETF Dashboard by going to BI ETFS <GO>.

— With assistance by Claire Ballentine