Financial exchange traded funds (ETFs) are bringing up the rear among U.S. sectors in 2011 as investors worry about signs the economy is slowing and stricter regulations for banks.

In the Russell 3000 Index, a benchmark for the total U.S. stock market, financial services were the worst-performing sector with a gain of 2.8% year to date through April 22. Energy was the top sector and has benefitted from rising oil prices, according to Russell Indexes.

Large-cap bank stocks such as Citigroup (NYSE: C) and Bank of America (NYSE: BAC) have weighed on financial-sector ETFs this earnings season. [Citigroup, Bank of America Slow Financial ETFs.]

The highly traded Financial Select Sector SPDR Fund (NYSEArca: XLF) was up 1.2% year to date through April 21 and trailed the S&P 500, according to Morningstar.

“Investing in the financials sector requires a strong risk tolerance and the understanding that the sector is in recovery mode and will be susceptible to setbacks if the economy falters,” said Morningstar’s Timothy Strauts in a recent analyst report on the ETF.

The cap-weighted fund is “top-heavy” and its performance is driven primarily by major money-center banks such as Citi, Bank of America,  J.P. Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC), the analyst said.

Financial Select Sector SPDR Fund


The opinions and forecasts expressed herein are solely those of John Spence, 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.