Financial ETFs Caught in Downdraft | ETF Trends

Financial exchange traded funds (ETFs) that focus on some of the market’s most active stocks such as Citigroup (NYSE: C) and Bank of America (NYSE: BAC) just can’t get into gear.

Financial-sector ETFs are trading below where they stood in February as the bank earnings season has not gone well.

Still, Deutsche Bank analysts said Citigroup is among their top picks in large-cap bank stocks, along with J.P. Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC).

“Citigroup was the best performing large cap bank stock during the earnings season. But we see additional upside given lower mortgage exposure, likely some stabilization in key areas the next couple of quarters (such as net interest margin and credit card balances), potential catalysts related to Citi Holdings (asset sales, etc.), solid capital/reserves, and an attractive valuation,” they wrote in a report.

“J.P. Morgan continues to gain market share in a number of areas—including trading and credit card for example. This,combined with strong capital, and an attractive valuation … keeps us positive on the stock,” they added. “Wells Fargo shares underperformed the group … during earnings—first over mortgage related concerns and then on weaker revenue. However, mortgage hits have been (and will be) manageable in our view and we think market share gains will continue given recent conversions and branding efforts in the Wachovia franchise. Also, expense trends should improve throughout 2011 given a new firm-wide expense initiative.”

Financial Select Sector SPDR Fund (NYSEArca: XLF) and SPDR KBW Bank ETF (NYSEArca: KBE) are among the popular ETFs that take large positions in big bank stocks.

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.