Financial stocks and exchange traded funds have been the worst performing sector in the S&P 500 over the past quarter, and some technical analysts argue that the weakness will extend.
Over the past three months, the Financial Select Sector SPDR (NYSEArca: XLF) is up 3.8%, Vanguard Financials ETF (NYSEArca: VFH) rose 3.7% and he iShares U.S. Financials ETF (NYSEArca: IYF) gained 3.5%. The S&P 500 Financials Index is 1.8% since the start of April.
In comparison, the S&P 500 index 4.7% higher quarter-to-date.
“Financials continue to underperform the market month after month after month,” Sterne Agee, chief market technician at Carter Worth, said in a note, CNBC reports. “And if one excludes certain very strong, large-cap, marquee names that are buttressing the sector (such as Wells Fargo, Berkshire Hathaway, American Express) things would be even worse. …Bottom line: We retain the view that Financials are not a good place to be.”
The financial services industry is fairly valued, writes Stephen Ellis, director of Morningstar‘s financial services team. Specifically, the industry trades at a price-to-fair value ratio of 1.01, which suggests that all the bargain hunters have already taken their picks.
Additionally, the surprisingly poor results on the 2014 Comprehensive Capital Analysis and Review (CCAR) for several banks has been weighing on the sector. [Financial Services ETFs Deal With Bad BofA Dividend News]
“The CCAR results highlight an ongoing theme within banks that compliance, regulatory, and legal costs are highly elevated across the industry and will be for some time, and the uncertain nature of these costs over the next several years will be one of the biggest factors affecting large banks’ returns on equity,” Ellis said.
The Financial Select Sector SPDR ETF tracks financial stocks taken from the S&P 500. XLF has a 0.16% expense ratio.
The Vanguard Financials ETF tracks financial stocks taken from the MSCI U.S. Investable 2500 Index. Since VFH selects its holdings from a broader universe of stocks, the ETF includes a greater tilt toward mid- and small-cap stocks, compared to XLF’s holdings. VFH has a 0.19% expense ratio.
The iShares ETF tracks the Dow Jones US Financials Index, but IYF comes at a slightly more expensive 0.46% expense ratio.
For more information on the financials sector, visit our financial category.
Max Chen contributed to this article.