Financial ETFs Dominate Top-Performers List

ETFs that hold bank shares were among the biggest gainers in the first quarter, though proposed reforms may crimp profits.
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NEW YORK (TheStreet) -- Five of the 10 best-performing exchange traded funds in the first quarter were propelled by financial firms.

The

SPDR KBW Bank ETF

(KBE) - Get Report

, which tracks the KBW Bank Index, returned 22%.

The ETF holds large commercial and regional banks including

Bank of America

(BAC) - Get Report

,

Citigroup

(C) - Get Report

,

Wells Fargo

(WFC) - Get Report

and

JPMorgan Chase

(JPM) - Get Report

. The index has retraced about a third of its loss since its February 2007 peak.

Still, proposed financial-regulation reforms are creating uncertainty for the current quarter. A bank tax and a limit on risk-taking could crimp profits. Now that the Obama administration has pushed through health-care reform, the president is setting his sights on banks, which rankled Americans because they paid for the bailout in 2008 only to watch the biggest companies produce near-record profits a year later.

However,

TheStreet.com's

senior banking analyst,

Philip van Doorn

, says that, "based on analysts' projections for 'normalized earnings' and where valuations were before the credit crisis began, most bank stocks appear to be cheap despite the run-up." He said it's a "great time to go into the sector as it rises along with the economy."

The

First Trust NYSE Arca Biotechnology Index Fund

(FBT) - Get Report

produced a return of 30% in the first quarter, the best of any exchange traded fund. Cutting-edge holdings that dominate the ETF include

Human Genome Sciences

(HGSI)

,

Vertex Pharmaceuticals

(VRTX) - Get Report

and

Cephalon

(CEPH)

.

In a bullish sign for the economy, two consumer-cyclical ETFs finished in the top 10. The

PowerShares Dynamic Leisure & Entertainment Portfolio

(PEJ) - Get Report

sailed to a 17% gain with bets on

Starbucks

(SBUX) - Get Report

and

Carnival

(CCL) - Get Report

.

The popular

SPDR S&P Retail ETF

(XRT) - Get Report

charged ahead 16% with

Foot Locker

(FL) - Get Report

and

Whole Foods Market

(WFMI)

.

For the best-rated exchange traded funds, check out our

Top Rated ETFs

page.

-- Reported by Kevin Baker in Jupiter, Fla.

Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.