Here's why financials are moving higher: David Darst

Financial stocks were the best performing sector of the week, and it wasn't just because investors were gearing up for a rising interest rate environment, Wall Street veteran David Darst said Friday.

The financials were down 2.7 percent as of April 1 but have "roared ahead" by 9.8 percent since then, according to the KBW Bank Index, the independent investment consultant said in an interview with CNBC's "Closing Bell."

While the sector tends to do well when interest rates are rising, there are number of other factors that are also propelling it higher, Darst noted.

Those factors include a stronger dollar, the fact that the banks are offering stock buybacks and dividend increases, and improved earnings.

"They're making better loans today than they used to, less credit write-offs," said Darst, former chief investment strategist at Morgan Stanley Wealth Management.

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Lastly, he said the sector's price-to-book value is the lowest of all the 10 S&P 500 groups.

When it comes to investing in the financials, Darst would look at dividend payouts and said he wouldn't neglect the Canadian banks.

"Nobody pays attention to the Canadian banks," he added. "The World Economic Forum says they're the strongest banks in the world."

The top five Canadian banks have a combined yield of 4.07 percent with a 14 or 15 price-earnings ratio, he noted.

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