6 ETFs for a Financial Sector Recovery | 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.]