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Bank of America Carrying Financial ETFs

NEW YORK ( TheStreet) -- Bank stocks have made a strong comeback in 2012 and financial ETFs are riding on the sector's coattails, with some funds experiencing strong inflows in recent weeks.

According to ETF Channel , financial ETFs have seen over $1.5 billion in inflows over the past week, of which $1.2 billion has flowed into the popular Financial Select Sector SPDR (XLF) ETF.

Investors seeking an easy exposure to a diversified group of bank stocks and who want to trade in and out of shares quickly as markets switch from "risk on" to "risk off" clearly find these ETFs appealing.

Yet, the rally has been concentrated in a handful of bank stocks rather than in a diversified basket.

As KBW analyst Fred Cannon wrote in a note Tuesday, large-cap banks have outperformed the sector, with the KBW Bank Index gaining 26% year to date compared to the S&P Banks Select Industry Index, up 22.3%, with both topping the overall S&P Financial Select Sector Index (IXM) performance, which is up 20.96%.

Bank of America (BAC - Get Report) has led the rally in large-caps with its gain of 72%. So funds that have a large weighting to the stock have undoubtedly surged the most, explaining the divergence in performance between different financial ETFs.

The top three performers year-to-date include Market Vectors Bank and Brokerage ETF (RKH), Revenue Share Financials (RWW) and iShares Dow Jones U.S. Financial Services Fund (IYG), all gaining 27% to 28% according to data compiled from Bloomberg.

All three ETFs counted the big four banks- Bank of America, JPMorgan Chase (JPM - Get Report), Citigroup (C - Get Report) and Wells Fargo (WFC - Get Report) among their top five holdings, according to data available at Morningstar.

They also notably had more concentrated exposures to the top five holdings compared to other ETFs. The RKH ETF for instance had 40% of its portfolio invested in the top five stocks that included the big four and HSBC (HBC).

Of the three, RWW, which tracks the S&P 500 Financials, had the biggest exposure to Bank of America at 9.9% of the total portfolio.

The differences in composition between the indices also help to explain some of the divergence in performance.
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BAC $14.56 0.00%
C $46.28 0.00%
JPM $63.20 0.00%
XLF $23.31 0.00%
WFC $49.98 0.00%


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