Financial ETFs Still Have Challenges

In the midst of the global financial crisis, banks and their exchange traded funds (ETFs) were one of the hardest-hit sectors. Ultimately, they were forced to cut their labor forces, but did they cut their labor forces too much?

According to Megan Barnett at Minyanville they did, now they now are trying to catch up to smaller banks and foreign firms.  Major firms such as Goldman Sachs (GS), Bank of America (BAC) and JP Morgan (JPM) are on a hiring binge and some think that this might not be the greatest idea because things haven’t changed drastically for the sector in the last few months.

In fact, the watchdog of the Troubled Asset Relief Program (TARP) released a report Tuesday morning suggesting that the $700 billion bailout has done little to relieve banks of their troubled assets.  Additionally, many banks have reason to worry about the quality of some of their assets shrinking even more. Loan quality has decreased in the last 18 months as good creditors go bad while the few good borrowers pay down their loans.

The banking sector is starting to stabilize, but this doesn’t mean that it’s in the clear. Some ETFs that may be influenced by the outlook of the financial sector are the following:

• SPDR Financial Select Sector (XLF): up 12.1% year-to-date; JPM is 12.5%; BAC is 10.6%; GS is 6.8%

• iShares Dow Jones U.S. Financial Services (IYG): up 12.9% year-to-date; JPM is 14.1%; BAC is 11.1%; GS is 6.8%

• Regional Bank HOLDRs (RKH): up 2.2% year-to-date; JPM is 23.4% and BAC is 5.8%

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