According to Lipper data, financial sector ETFs have seen net inflows of $6.3 billion between Jan. 1 and Jan. 24, more than any other sector.

"When interest rates rise, as will happen in 2022, banks' earnings will increase dramatically due to the higher interest rates, which creates a great spread between the interest they make lending and what they pay in interest," said Daniel Milan, managing partner at Cornerstone Financial Services, based in Michigan.

"This is why the financial sector ETFs are having the highest inflows, as they should be one of the best performing sectors due to the increasing rate environment."

Analysts also expect investment banking and trading revenues of the banking sector to be stronger this year, despite higher interest rates.

JPMorgan, the second-biggest provider of worldwide M&A advisory after Goldman Sachs, expects some normalisation in investment banking revenue this year, but added that the overall deals pipeline remained healthy.

The Financial Select Sector SPDR Fund led with inflows worth $1.9 billion this year, while Invesco KBW Bank ETF and SPDR S&P Regional Banking ETF received over $500 million each.

Investors are broadly cutting their exposure to growth stocks they accumulated over the past two years after the Federal Reserve flagged aggressive plans to begin raising rates and remove monetary stimulus.

Growth sectors, including tech and internet firms, are more vulnerable to a rise in interest rates, as their future cash flows get diminished.

The MSCI World Growth index, which captures large and mid-cap stocks with higher forward earnings growth rates across 23 countries, has declined over 11.5% this year.

On the other hand, the MSCI World Value index, which captures cheaper stocks based on valuation ratios, fell just 2.4%.

According to Refinitiv data, financial sector stocks look cheaper in terms of the forward price-earnings ratios (P/E), which enhances their appeal.

The data shows large and mid-cap companies in the financial sector are trading at a forward 12-month P/E of 10.1, compared with the tech sector's 18.2.

(Reporting by Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Alison Williams)

By Patturaja Murugaboopathy