ETF Trends
ETF Trends

The mortgage scandal from a leading national bank may threaten recent gains in the broader financial industry and related exchange traded funds (ETFs).

Despite overall positive gains on Wednesday, Bank of America (NYSE: BAC) can’t seem to find any luck as its share dropped more than 2.5% on heavy volume, writes Swing Trader for Benzinga.

Bank of America, or BofA, has been struggling with mortgage problems – some banks have been accused of purposely losing loan documents in order to mislead the public – and the bank is just starting a long legal fight with the New York Fed over repurchasing mortgages. This uncertain outlook has investors skittish.

For the short-term, BofA stocks may be pressured, but it may ultimately push BofA down to bargain levels and eventually become an opportunity, remarks the Swing Trader. The BAC stock is down around 25% year-to-date. [Citi’s Profit Leads Financial ETFs Higher.]

BofA reported a worse-than-expected third quarter loss and the bank will resume foreclosure proceedings on some 100,000 homes, according to Forbes. All the hoopla surrounding the mortgage problem may begin to negatively affect the whole financial sector, which could affect a large number of ETFs since some ETFs do have high exposure to BofA. [Financial ETFs Getting Their Color Back.]

Examples include:

  • RevenueShares Financial Sector Fund (NYSEArca: RWW) allocates 10.9% of its assets to BAC and 9% in in both Citigroup (NYSE: C) and JP Morgan (NYSE: JPM). It’s about flat so far this week.
  • iShares Dow Jones U.S. Financial Services Index Fund (NYSEArca: IYG) holds nearly 9.8% in BAC. It’s down 0.3% so far this week.
  • SPDR KBW Bank ETF (NYSEArca: KBE) allocates more than 10.6% in BAC. It’s down 1.2% so far this week.

For more information on the banking industry, 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. 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.