Shares of Bank of America ( BAC) rose as much as 8.8% today after the company sold $13.5 billion in stock to shore up its capital, but ProShares Ultra Financials ( UYG) investors were rewarded with a loss. The "shorts" won again. ProShares UltraShort Financials ( SKF), designed to rise at twice the pace of banking shares' decline, climbed as much as 3%. ProShares Ultra Financials, which bets on an increase in stock prices, dropped as much as 3.5%. Bank of America, the country's largest financial institution, is commonly considered a bellwether for the U.S. banking industry. But the company's stock doesn't always move in step with ProShares Ultra Financials. Investors should be wary of using the Charlotte, North Carolina-based firm as a proxy for U.S. banking. Bank of America rose on 14 trading days in the past month, compared with 10 days for ProShares Ultra Financials. Bank of America's stock advanced almost 10% during that time, twice the rate of the ETF's. JPMorgan Chase ( JPM) increased the same number of days as ProShares Ultra Financials, handing investors the same returns. That's because JPMorgan is the largest member of the ETF, which is based on the Dow Jones U.S. Financials Index. JPMorgan comprises 9.9% of the Dow Jones index, more than twice that of Bank of America. Even Wells Fargo ( WFC) and Goldman Sachs ( GS) carry more weight. In New York trading today, the five largest Dow Jones U.S. Financials Index members declined, save for Bank of America. Investors are concerned some financial institutions haven't purged themselves of all their toxic securities as the government is set to write new rules that could rein in profits.
Not only is Bank of America a poor proxy for U.S. banking, but so is ProShares Ultra Financials itself. Banks account for 36% of the ETF's weighting, with insurance making up 22% and real estate 12%. Real estate investment and services stocks were the worst-performing industry group on the S&P 500 Index today, dropping as much as 4.9%. PowerShares Dynamic Banking Portfolio ( PJB) more closely follows the U.S. banking industry. The ETF is based on the Dynamic Banking Intellidex Index. Its 30 members include First Horizon National ( FHN), the largest holding, and Bank of Hawaii ( BOH). Large-cap companies account for less than 5% of the ETF. PowerShares Dynamic Banking Portfolio handed investors a smaller loss than did ProShares Ultra Financials, as its holdings are less volatile. For investors who want to make money on a rebound in banking, they would do well to review which exchange traded funds tap into the industry most directly.