Overall, it hasn’t been a good year for the financial sector as evidenced by the S&P 500 Financials index down 1.71 percent year-to-date. Things could get more interesting if blockchain technology, the underlying technology that forms the basis of cryptocurrencies, takes off and disrupts or vastly improves the industry.

In terms of total assets, three of the top five biggest financial sector ETFs are down for the year:

  1. Financial Select Sector SPDR (NYSEArca: XLF)–down 2.26%
  2. Vanguard Financials ETF (NYSEArca: VFH)–down 0.99%
  3. iShares US Financials ETF (NYSEArca: IYF)–down 0.53%

The two bucking the downtrend are SPDR S&P Regional Banking ETF (NYSEArca: KRE)–up 7.47% year-to-date and SPDR S&P Bank ETF (NYSEArca: KBE)–up 3.28% year-to-date.

While cryptocurrencies may cover a niche market as of now, the underlying technology known as blockchain could be far-reaching. Financial services provider UBS Group CEO Sergio Ermotti recently stated that blockchain technology will be an essential component for the financial services industry.

Related: A Flat Yield Curve Could Put Pressure on Financial ETFs

“Our industry will continue to be under pressure, in terms of gross margins. It’s no doubt,” said Ermotti. “The only way you can stay relevant is not only by being strong in terms of capital, in terms of products, the quality of the people you have, advice you give to clients. You need also to be able to price it correctly.”

With reference to the financial industry, Ermotti said that blockchain technology will allow the “freeing up of resources to become more efficient” and that it’s “a great way to allow us to reduce costs.”  Furthermore, Ermotti said blockchain technology will prove to be transformative to the industry’s cost base within five to 10 years.

Last fall, UBS joined a blockchain partnership called Batavia with IBM, Bank of Montreal, CaixaBank, Commerzbank, and Erste Group last fall and performed its first experimental transactions in April by sending cars from Germany to Spain and furniture production textiles from Austria to Spain.  It will be a wait-and-see affair to determine whether other companies that operate within the financial sector follow suit and how the ETFs that carry these companies respond.

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