Keep Your Bank ETF Expectations Grounded | ETF Trends

Bank stocks and sector-related exchange traded funds have been pulling ahead in the financial space, but investors should not get overzealous with their bets.

Year-to-date, the SPDR S&P Regional Banking ETF (NYSEArca: KRE) rose 4.8%, iShares U.S. Regional Banks ETF (NYSEArca: IAT) gained 3.6%, PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR) increased 4.6%, SPDR S&P Bank ETF (NYSEArca: KBE) advanced 5.1%. Meanwhile, the Financial Select Sector SPDR (NYSEArca: XLF) added 0.9% and SPDR S&P 500 ETF (NYSEArca: SPY) returned 3.9% so far this year.

Bullish investors may look to banks as the industry is now well capitalized, dividends are on the rise and continued growth favors the cyclical sector, writes John Authers for Financial Times.

Moreover, some argue that financials look cheap after the sector largely underperformed the broader market since the financial crisis.

On the other hand, some factors may keep a lid on future gains. For instance, the slew of post-crisis regulation has dampened profits and low interest rates have kept banks from many money from interest margins.