Avoid Bank ETFs As Shakedowns Continue

July 24, 2014

Banking is lagging other financial industries.

Financial Industries 1-Year Total Return

Chart courtesy of StockCharts.com

The order of the year for big banks seems to be a round-robin of punitive fines from regulators. The fines—usually measured in billions—are dragging down the bottom line of many of the nation's largest banks, and risk-averse investors may prefer to avoid this regulatory risk altogether.

We can see the bank pain in their performance figures as well: Over the past year, bank ETFs have underperformed the other major financial sectors and the broad financials markets in general.

For example, the largest bank ETF, the SPDR S&P Bank ETF (KBE | A-55), only returned 4.9 percent over the past year, while the largest financial services ETF, the iShares US Financial Services ETF (IYG | A-84) , returned 11.5 percent.

But it's not just financial services, banks are underperforming other industries within the financial sector as well: The SPDR S&P Insurance ETF (KIE | A-73) returned 13 percent over the past year, and the SPDR S&P Capital Markets ETF (KCE | B-73) returned 14.3 percent.

It's tough to say what other banks or fines regulators might be considering, so risk-averse investors may prefer to avoid banking ETFs altogether. Then again, those brave enough to see a bottom in bank woes might find them timely.

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