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ETF Madness In March
While large cap equities in the United States managed to churn out slight gains last year, the majority of major financial service institutions had a year they would rather forget about from a share price standpoint. It was only a matter of time until they bounced back though. They are off to a brilliant start this year, and have driven financial service exchange-traded funds (ETFs) to the top of the class in March. Here are five ETFs that emerged as leading performers during the month.
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Cash Machines
The Financial Select Sector SPDR (ARCA:XLF) has posted one of the best returns for non-leveraged, non-inverse ETFs during March. Its most impressive holding, Bank of America (NYSE:BAC), is up roughly 72% in 2012 after getting its teeth kicked in last year. XLF which holds a mix of banks, real estate investment trusts and insurance companies is up around 7% since the beginning of March.
The rising tide in the financial space has given a lift to both large and regional banks. The SPDR S&P Bank ETF (ARCA:KBE), a fund which primarily holds large bank stocks, is up over 7% on the month. Regional banks have had impressive showings as well in March. The SPDR S&P Regional Banking ETF (ARCA:KRE) has risen roughly 5.6% during the month. For more information, see 3 Steps To A Profitable ETF Portfolio.
I believe this rally upswing was long overdue. The punishment that the sector suffered last year was disproportionate to its underlying fundamentals. As investors have been gradually increasing their penchant for risk, it should not be a surprise to see these ETFs faring well. Their next hurdle will be in meeting profit expectations in the coming weeks as the first quarter earnings season gets underway.
Honorable Mention
Just as the National Association of Home Builders/Wells Fargo confidence index has risen to its highest level since 2007, the SPDR S&P Homebuilders ETF (ARCA:XHB) has gained its second wind. The fund is up approximately 8% since the start of March and over 25% since the beginning of the year. XHB should continue to hold its ground while mortgage rates remain near historic lows and housing starts begin to pick up.
One other notable ETF that has beaten the market this month has been the SPDR S&P Retail ETF (ARCA:XRT) with a month-to-date return of roughly 6%. A recent Commerce Department reported showed that U.S. retail sales in February notched their largest gain in five months. Automakers, clothing retailers and building material companies have all enjoyed the recent willingness of consumers to dig deeper into their wallets.
The Bottom Line
The month of March has been a coming out party for some ETFs that were among the most shunned in recent years. As these sectors are able to gain back the confidence of investors, it stands to reason that they will be able to make up lost ground and produce outsized returns. We will soon see whether these returns are justified by legitimate earnings growth or whether investors have gotten ahead of themselves.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Billy Fisher did not own shares in any of the companies mentioned in this article.
Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.
Cash Machines
The Financial Select Sector SPDR (ARCA:XLF) has posted one of the best returns for non-leveraged, non-inverse ETFs during March. Its most impressive holding, Bank of America (NYSE:BAC), is up roughly 72% in 2012 after getting its teeth kicked in last year. XLF which holds a mix of banks, real estate investment trusts and insurance companies is up around 7% since the beginning of March.
The rising tide in the financial space has given a lift to both large and regional banks. The SPDR S&P Bank ETF (ARCA:KBE), a fund which primarily holds large bank stocks, is up over 7% on the month. Regional banks have had impressive showings as well in March. The SPDR S&P Regional Banking ETF (ARCA:KRE) has risen roughly 5.6% during the month. For more information, see 3 Steps To A Profitable ETF Portfolio.
I believe this rally upswing was long overdue. The punishment that the sector suffered last year was disproportionate to its underlying fundamentals. As investors have been gradually increasing their penchant for risk, it should not be a surprise to see these ETFs faring well. Their next hurdle will be in meeting profit expectations in the coming weeks as the first quarter earnings season gets underway.
Just as the National Association of Home Builders/Wells Fargo confidence index has risen to its highest level since 2007, the SPDR S&P Homebuilders ETF (ARCA:XHB) has gained its second wind. The fund is up approximately 8% since the start of March and over 25% since the beginning of the year. XHB should continue to hold its ground while mortgage rates remain near historic lows and housing starts begin to pick up.
One other notable ETF that has beaten the market this month has been the SPDR S&P Retail ETF (ARCA:XRT) with a month-to-date return of roughly 6%. A recent Commerce Department reported showed that U.S. retail sales in February notched their largest gain in five months. Automakers, clothing retailers and building material companies have all enjoyed the recent willingness of consumers to dig deeper into their wallets.
The Bottom Line
The month of March has been a coming out party for some ETFs that were among the most shunned in recent years. As these sectors are able to gain back the confidence of investors, it stands to reason that they will be able to make up lost ground and produce outsized returns. We will soon see whether these returns are justified by legitimate earnings growth or whether investors have gotten ahead of themselves.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Billy Fisher did not own shares in any of the companies mentioned in this article.
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