Related: More Upside Coming for Bank ETFs

Deregulation could also help the financial sector improve their margins. President Donald Trump’s administration has shown its eagerness in cutting back the red tape and remove some of the post-financial crisis regulations that has stifled the industry.

“One can only hypothesize about the future of the housing and mortgage industries since the new tax rules are not in effect and Fannie and Freddie are still functioning,” said Bove. “However, assume that the two mortgage giants are cut down and the new tax proposals are accepted. In this scenario the biggest banks would regain control of the mortgage industry. They would place newly originated mortgages in their portfolios. These mortgages would have much reduced terms and much higher interest rates.”

Since the start of the fourth quarter, investors have added $1.26 billion to XLF, good for the second-best total among all sector ETFs. This quarter, only nine ETFs have seen larger inflows than XLF.

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