Financial stocks and bank sector-related exchange traded funds have been among the worst areas of the market this year, but after the steep declines, investors may find a cheap play.
The financial sector is the worst performing S&P 500 sector this year, with the Financial Select Sector SPDR (NYSEArca: XLF) down 17.5% year-to-date. However, some market observers see opportunity after the fall off.
“We’re getting into serious overshoot territory,” Philippe Bodereau, a portfolio manager focused on bank securities at Pacific Investment Management Co., told Bloomberg. “We think there are very cheap valuations across the capital structure and that the sell-off is overdone. It’s an excellent buying opportunity.”
For instance, bank stocks surged Friday after JPMorgan & Chase (NYSE: JPM) CEO Jamie Dimon bought $26.6 million worth of the company’s stock after the banking sector rout, reports Hugh Son for Bloomberg.
JPM jumped 7.7% Friday.
Meanwhile, bank sector ETFs were among the best performers on Friday. The PowerShares KBW Bank Portfolio (NYSEArca: KBWB) gained 4.6%, SPDR S&P Bank ETF (NYSEArca: KBE) rose 4.3%, SPDR S&P Regional Banking ETF (NYSEArca: KRE) increased 4.2% and iShares U.S. Regional Banks ETF (NYSEArca: IAT) advanced 3.6%. JPM makes up 8.5% of KBWB’s underlying portfolio and 2.6% of KBE.
Some observers also see opportunity in bank stocks across the pond.
“The valuations in European banks in particular have improved tremendously,” Krishna Memani, chief investment officer at Oppenheimer Funds, told Bloomberg “While their profitability is lower, leaving them for dead may not be justified. If you have a three- to five-year view, some of these financial stocks are extraordinarily good value and you should be looking to buy them.”
The iShares MSCI Europe Financials ETF (NYSEArca: EUFN) decreased 21.3% year-to-date, but EUFN was 2.9% higher Friday.
European financials were strengthening Friday as Deutsche Bank (NYSE: DB) shares surged 11% after the bank said it was buying back over $5 billion in bonds, while Commerzbank’s stock jumped 18% on strong earnings, CNBC reports.
EUFN includes a 1.5% position in Deutsche Bank and 0.5% in Commerzbank.
Max Chen contributed to this article.