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Banking ETFs
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Average returns in this Category
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3 months
return
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6 months
return
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12 months
return
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YTD
return
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Banking
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8.15% |
33.64% |
-30.16% |
-10.84% |
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About Banking ETFs |
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Banking ETFs Overview and forecast
In the 12 month period, Banking ETFs and the banking sector generally were pulverized, in terms of prices. Trading volumes have been respectable, however, and the margins off the lows have been excellent, in some instances, if slow. The recovery of the Banking ETFs has been credible, however, in view of the fact that the price levels at the end of the June quarter of 2009 held up pretty well since May.
Some of these ETFs perform a lot better than others. KBW Bank ETF (AMEX:KBE) has been trading in high volumes for any ETF, and has shown the ability to produce steep price rises in relatively short time frames, compared to the rest of the Banking ETFs. This is another of the traditional ETF models, which started at a much higher unit price, crashed, and has been reborn as a very strong trading ETF.
That model is showing up across the ETF spectrum, and it tends to be the ETFs that are popular with traders which are showing the best returns on investment. As our chart indicates, this ETF has managed multi million unit sales consistently across the second quarter of 2009, and the prices have responded well, going from under $10 in March 2009, to a range of $20- $18 in May- June.
Short term (6 months)
The dividing line among the Banking ETFs is performance. Some of the Banking ETFs aren't too impressive. There's not a lot wrong with their holdings, or their sectors, but we're talking about investment, not starting a stamp collection. In terms of short term moves, the upside is limited to performers like KBE.
It's obvious that traders have made up their minds about which of the Banking ETFs are worth their while, and that choice is being backed up by quite big money. Investment may not be a popularity contest, but results have made some more popular than others, and in the short term, those are the ETFs to watch.
Medium term (2 years)
In fairness, the banking sector is clawing and scratching its way out of the woods, and the medium term should see the return to a revised version of normal business for the Banking ETFs. The big post crash shift to a trading, rather than an investment, model for most ETFs should work to push the Banking ETFs higher.
There's no reason to believe, however, that this move will necessarily be sudden, or particularly big, over the medium term. The post crash ETF market hasn't shown any indication of supporting the much higher historical prices, and a return to that price range is very unlikely in the medium term. It is however reasonable to expect that improving returns from dividends, splits, etc, may add value.
Long term (5 years)
Banking ETFs will definitely be out of the woods in the five year period. They may, however, be quite different investment products compared to their original models. The present state of the Banking ETFs is a comparatively small number of ETFs, and this isn't a small pond. The existing Banking ETFs can expect competition, and a lot of it, in the long term. There are already major league banks like Deutsche Bank moving into the market, and with them they bring not only big capital, but a new market presence.
This won't so much dilute the market as change the dynamics. Smaller ETFs could easily be marginalized, reducing their ability to produce price rises. They may also become prey for bigger ETFs, and a few rationalizations would completely alter the Banking ETFs market. The long term view is very positive, but in a drastically altered environment.
Projections to qualifiers
Banking ETFs showed a flaw during the crash. They were so inextricably linked to their indices that they had very little insulation against the crash. Market perceptions of the banks were extremely negative. Matters weren't improved by the fact that most of the Banking ETFs were directly in the firing line, in terms of holdings, most of which were US banks.
It's a matter of opinion, but it seems unlikely that the narrow index model, particularly in financial and banking ETFs, is likely to survive. It was much too easy a target for the crash period. The default alternative to a single index model is to diversify into other holdings, and it's likely that lesson will have been learned. The entry of the big international banks in the ETF market makes that change of models much more likely, because it means Banking ETFs can support a much more diverse range of investment products.
The investment market, particularly in financial products like ETFs, is ultimately a competitive market. That will provide the drivers for a much needed change. The inception stage of the ETFs was a relatively modest thing, in terms of capital, particularly compared to the big traditional markets like the stock market. The arrival of the giant financial institutions will cause major upheavals, particularly among the financial and banking ETFs. That means that the entire paradigm is now changing. Investors should be looking for opportunities, as this new era begins.
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Last Updated on: 2010-01-14 02:03:40 |
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Quotes are updated automatically. Quotes are delayed. Etftips.com has not
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