ETFs for Exposure to an Increasingly Bullish Sector Play

Things are looking up for banks and financial sector exchange traded funds as more traders begin to feel more optimistic about the outlook of the underperforming area.

The financial sector remains the worst performing area of the S&P 500, with the Financial Select Sector SPDR (NYSEArca: XLF) up 0.1% year-to-date, compared to the broader S&P 500’s 4.5% gain. Meanwhile, the sub-sector-specific SPDR S&P Bank ETF (NYSEArca: KBE) dipped 5.2% so far this year.

Related: As Earnings Season Arrives, Financial ETFs Offer Opportunity

The financial sector has been pummeled for most of the year, selling off in the market rout in the beginning months, recouping losses in May and tumbling again after the United Kingdom’s so-called Brexit vote.

However, sentiment is shifting, with options traders growing more bullish. As of Tuesday morning, 42% of options traders were rated bullish on S&P 500 financial shares, the highest share since April 18 when 43.5% were bullish and higher than the average 29.5% since January, reports Akane Otani for the Wall Street Journal.

Supporting the rosier financial sector outlook, a string of better-than-expected earnings reports from major banks including J.P. Morgan Chase & Co. (NYSE: JPM), Bank of America (NYSE: BAC) and Citigroup (NYSE: C) have bolstered investment confidence.

J.P. Morgan earnings beat helped set the pace for second quarter expectations on rising deposits, credit card sales and lending.