Can Bank ETFs Make A Comeback?

Morgan Stanley takes the top spot in terms of assets at 9.4%, while another in-focus bank, Goldman, assumes the third spot with more than 7.0% exposure. State Street – a stock with reaffirmed rating – took the second spot with above 8% weight to round the top three. The fund charges an expense ratio of 0.35% a year.

In terms of performance, this fund was up about 1.87% in the trailing three-day period despite the downgrade of two key elements. In the first nine months of the year, the fund gained 29.4%. KBWC also carries a Zacks ETF Rank #2 with a Medium risk outlook.

Other Choices

The other two products IAI and IYG – both of which are exposed to GS, MS and JPM – delivered a return of around 0.8% and 0.6% in the concerned period while in the last one-year period (as of September 30, 2013) IAI shot up 50.6% and IYG posted an impressive 34.4% return.

Both these iShares funds charge 0.45% in fees per year. While IAI has a Zacks ETF Rank #2 with Medium risk outlook, IYG has a Zacks ETF Rank #3 (Hold) with a Low risk outlook.

Bottom Line

The financial sector has lost some luster but is still in demand. Investors can still count on the sector which is likely to return to revenue growth next year. Bullish Zacks ETF Ranks for most of the funds are also supportive of this view.

Moreover, financial institutions which are more into the broker-dealer/capital markets segment might get their share of aid next year, if not in December, when the ‘taper talk’ resumes in all likelihood. Thus, there are clearly plenty of drivers in store for the sector to make up for the disappointment created by Moody’s downgrade.

This article is brought to you courtesy of Eric Dutram.

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