It seems everyone has an opinion on financial exchange traded funds (ETFs). Some say financial ETFs are likely to thrive from the rate cut, so now when they are cheap, it’s the perfect time to buy. Yet others say these ETFs won’t get much help from the rate cut and are doomed for another wave down, similar to the homebuilders.

There’s no denying that the banks have been beaten up pretty badly. However, this has occurred in a year when the markets have, all things considered, performed well. However, banks are extremely undervalued on a historical basis, and they’re the ones that benefit from the woes of consolidating/bankrupt lenders, says Gary Gordon for ETF Expert. As bad as the KRW Bank Index (KBE) looks to the momentum investor, the contrarian investor sees value. It’s the same story for broader financial ETFs such as Financial Select Sector SPDR (XLF), Vanguard Financials ETF (VFH) and iShares Dow Jones U.S. Financial Sector Index Fund (IYF). Year-to-date, KBE is down 11.2%, XLF is down 8.8%, VFH is down 8.7% and IYF is down 9.0%.

Kbe

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.