ETF Trends
ETF Trends

The financial sector’s recovery may ultimately be an uneven one. Regional banks may prosper while larger ones still struggle under the weight of TARP and increased scrutiny. There are exchange traded funds (ETFs) to play the recovery – wherever it’s happening.

After a year of recuperating from the financial crisis, big banks may be healthy enough to resume the task of making big money. If not, there’s regional banks, which won’t be targeted in any limits on size that come down from the government. Or community banks, those small, local financial centers that are even further removed from the economic crisis.

One of the most prominent bullish argument for banks is the widening yield curve slope, which allows banks to make profits on the rate spread. [Why Big Banks May Be the Next Performers.]

Wherever the recovery happens first, take a look at some of the ETFs below to spot opportunities.

Claymore U.S. Capital Markets Bond (NYSEArca: UBD). The fund tries to reflect the performance of the fixed-income securities index The Capital Markets Bond Index, or the CPMKTB Index. The Index represents the traditional investment grade securities in the U.S. long-term fixed income capital markets. Capital markets are the markets where individuals and institutions trade financial securities. This includes the stock and bond markets.


Financial Select Sector SPDR (NYSEArca: XLF). The fund tries to reflect the returns and characteristics of the Financial Select Sector Index. XLF holds many of the nation’s largest banks.

Top holdings: Bank of America Corp. (NYSE: BAC) is 10.14%, JP Morgan & Chase Co. (NYSE: JPM) is 10.14% and Wells Fargo & Co. (NYSE: WFC) is 9.02%.

First Trust NASDAQ ABA Community Bank Fund (NASDAQ: QABA). The funds tries to reflect investment results that correspond to the price and yield of the equity index NASDAQ OMX ABA Community Bank Index. The index is a market capitalization-weighted index that includes common stocks of all NASDAQ-listed banks. Community banks tend to be steady, low-risk performers that offer limited upside in exchange for less volatility. [Government Gives Helping Hand to Community and Regional Banks.]

Top holdings: People’s United Financials (NASDAQ: PBCT) is 6.25%, TFS Financial Corp. (NASDAQ: TFSL) is 4.56% and Commerce Bancshares Inc. (NASDAQ: CBSH) is 3.85.

SPDR KBW Regional Bank ETF (NYSEArca: KRE).The fund tries to reflect the total return performance of the KBW Regional Banking Index. Regional banks are smaller, so they’re less likely to come under the scope of Obama’s new proposals. Regional banks were also relatively unscathed during the financial fallout of 2008, and have so far reported fourth-quarter earnings that exceed expectations.

Top holdings: Associated Banc Corp (NASDAQ: ASBC) is 2.55%, City Natl Corp (NYSE: CYN) is 2.2 and Bank Hawaii Corp (NYSE: BOH) is 2.17%.

iShares Dow Jones US Broker-Dealers (NYSEArca: IAI). The fund tries to reflect the price and yield performance of the Dow Jones U.S. Select Investment Services Index. The Index measures the performance of the investment services sector fo the U.S. equity market, which includes companies that provide a range of specialized financial services like securities brokers and dealers, online brokers and sercurities or commodities exchanges. A broker/dealer is any individual or firm in the business of buying and selling securities for itself and others.

Top holdings: Goldman Sachs Group (NYSE: GS) is 10.68%, Morgan Stanley (NYSE: MS) is 8.39% and CME Group (NYSE: CME) is 7.35%.


iShares Dow Jones US Insurance (NYSEArca: IAK).The fund tries to reflect the investment results that tracks the Dow Jones U.S. Select Insurance Index. Insurers not only provide things like auto and homeowner’s insurance, but they insure securities.

Top holdings: The Travelers Companies (NYSE: TRV) is 9.54%, Prudential Financial Inc. (NYSE: PRU) is 8.16% and AFLAC Inc. (NYSE: AFL) is 7.65%.


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

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. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.