Financial ETFs: Hurting Now, But Are They a Future Opportunity?

May 21st at 11:00am by Tom Lydon

Banking ETFThe market’s recent correction and the financial overhaul bill that’s winding its way through Congress haven’t stopped analysts from feeling bullish on financial exchange traded funds (ETFs).

The financial overhaul bill that passed in the Senate is a far-reaching one that would vastly increase the regulatory oversight of Wall Street’s largest banks. The legislation is meant to prevent a repeat of what happened in 2008, but it also will give the Federal Reserve greater power. Now the House and the Senate have to come to some sort of an agreement, which could be several weeks off, reports David M. Herszenhorn for The New York Times. [What Regulation Will Mean for Financial ETFs.]

The overhaul has gotten mixed reactions both politically and publicly.

There are a lot of reasons to hate the banking industry, but there are also a lot of investment opportunities to be had in banks, writes Michael Brush for MSN Money.

  • While many fear that it could constrain growth and cut into the U.S.’s financial power, history has shown that banking investments move in a typical pattern, which may make this the beginnings of some good times for bank stocks, adds Brush.
  • Brush also points out that banking investments are really cheap since bank shares have been pummeled by the European debt crisis, but investors may find a richer selection of winners among regional banks in terms of value and potential.
  • U.S. banks posted $18 billion in profits, their biggest in two years during the first-quarter earnings season. Interestingly, the bigger banks such as JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC) have become profitable again, while smaller banks are failing at a faster pace, Bloomberg reports.
  • Despite the pending overhaul, analysts are still bullish in the long run, says Brendan Conway for The Wall Street Journal. They cite an economic recovery, improving credit and consumers more willing to spend as outweighing worries about events overseas or overvaluations.

Right now, though, financial ETFs are getting beat up along with the rest of the market and have fallen below their long-term trend lines (the 200-day moving average). If the analysts are right, though, many of these funds could be a prime opportunity when the trends reappear – the question is, when will that happen? [Look Under the Hood of Financial ETFs.]

For more information on the financial industry, visit our financial category.

  • Financial Select Sector SPDR (NYSEArca: XLF)
  • iShares Dow Jones US Financial Sector (NYSEArca: IYF)
  • iShares Dow Jones US Financial Services (NYSEArca: IYG)
  • iShares S&P Global Financials (NYSEArca: IXG)
  • Vanguard Financials ETF (NYSEArca: VFH)
  • SPDR KBW Bank (NYSEArca: KBE)
  • Regional Bank HOLDRS (NYSEArca: RKH)
  • KBW Regional Banking ETF (NYSEArca: KRE)
  • iShares Dow Jones U.S. Regional Banks Index Fund (NYSEArca: IAT)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.