ETF Trends
ETF Trends

Bank lending is finally picking up, but it might be too early to expect financial exchange traded funds (ETFs) to start performing as well as they did in the pre-crisis era.

Demand for loans is way up as businesses search for ways to get growing. The amount of commercial and industrial loans held by commercial banks inched upward during the past two months, according to the Federal Reserve. Ruth Simon for The Wall Street Journal points out that this activity uptick comes after a steady decline over the past two years. [7 Regional Bank ETFs Betting on M&A Activity.]

Business lending is a healthy sign, indicating that businesses are expanding. That, ultimately, leads to more jobs and spending by the hired workers. The increase has been a modest one, but it’s enough to encourage analysts about banks’ future prospects. [3 ETFs to Play the AIG Comeback.]

Banks, however, still lag. Despite the recovery, many huge banks underperformed last year, says The Wall Street Journal. That bodes well if you’re in the market for a buying opportunity, because it says that despite the improvements, many bank ETFs may be relative bargains. The majority of them are still close to 50% below their 2007 highs.

The financial sector could still be in for some pain as it recovers, but it’s positioned itself well for any potential challenges. SPDR KBW Bank (NYSEArca: KBE) rose 22.4% in 2010, and it’s just 10% below its all-time high.

SPDR Financial Select Sector Fund (NYSEArca: XLF) didn’t fare as well in 2010, gaining just 10.8%, and it’s nearly 60% below its high. iShares Dow Jones U.S. Financial Services (NYSEArca: IYG) gained 7.2% last year and is also nearly 60% below its high.

Tisha Guerrero 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.