Why the US Banking Sector Has Been so Volatile in 2015



Banking sector performance

Banks have been volatile in 2015 despite robust fundamentals. The Financial Select Sector SPDR ETF (XLF) mainly holds large-cap US financial stocks in its portfolio. The fund invests in an array of financial service firms ranging among the following:

  • investment banks
  • commercial banking
  • mortgage finance
  • real estate investment trusts (REITs)
  • consumer finance
  • insurance

But the fund invests most heavily in banks, which make up 47.91% of XLF’s portfolio. As of November 6, 2015, the Financial Select Sector SPDR ETF has returned 0.3%, whereas the iShares Dow Jones US Financial Services ETF (IYF) has returned 3.2% YTD (year-to-date).

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Best and worst performing stocks

In 2015, investment banks and brokerage firms within XLF have been hit the hardest. On an average, these stocks have lost 3.6% YTD. Asset Management firms, consumer finance banks, diversified banks, and regional banks have returned 5.4%, -1.8%, 2.2%, and 2.7%, respectively, during 2015 so far.

Shares of Morgan Stanley, for example, have underperformed the sector and were down by 8.9% YTD as of November 6, 2016. Stocks that have generated highest negative returns as of the same date include the following:

  • State Street Group, which returned -5.3%
  • Regions Financial Corporation, which returned -3.7%
  • Keycorp, which returned -3.6%

In contrast, shares of Northern Trust Corporation (NTRS) have gained by 11.8% YTD as of November 6, 2015. Only 14 stocks among the 21 banks with exposure in XLF have generated positive returns during the year so far. Stocks to have generated the highest positive returns during 2015 include the following:

  • Huntington Bancshares (HBAN), which returned 9.7%
  • JPMorgan Chase & Company (JPM), which returned 9.4%
  • Zions Bancorporation (ZION), which 8.4%

Continue to the next part of this series for an analysis of why investors prefer large-cap banks amid ongoing global uncertainty.


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