Industry Updates

Financials sector finally showing improvements

George Geddes

a city skyline at night

The financials sector had a less than attractive 2018, with a downward trend for the whole of the 12-month period having had a positive performance the 18-months prior. The iShares MSCI Europe Financials ETF (EUFN) saw its net asset value fall 35.9% from its peak in 2018. The loss was nearly as bad as its 39.4% fall between May 2015 to July 2016.

Despite State Street stating financials was the worst performing sector for March, EUFN has a year-to-date return of 15.46% following a strong April performance.

The sector struggled, particularly in the US, when the Federal Reserves held a meeting in March and announced there will be no rate hikes this year. Furthermore, the increase in popularity of challenger banks such as Monzo and Starling Bank has put more pressure on the brick and mortar banks, especially amid the Brexit turmoil.

Having been the worst performing sector in March, the financials industry were the biggest returners in April. The Lyxor S&P 500 Banks ETF (BNKU), the Lyxor Stoxx Europe 600 Banks ETF (BNK) and the Lyxor MSCI World Financials ETF (FINW) produced attractive returns last month, with their NAVs rising 7.0%, 5.76% and 4.96%, respectively.

BNKU, BNK and FINW 1-month returns – Source: Bloomberg

BNKU, the US banking sector performed slightly better than BNK, the European sector, and FINW, the world sector.

JP Morgan Chase and Bank of America account for 19.0% and 13.8% of BNKU’s holdings. Equally, the two banks are the two largest weighted stocks in FINW as well. JP Morgan’s share price jumped 10.9% in April as well as Bank of America’s rising 7.1% over the same period.

In Europe, BNK’s largest holdings are HSBC and Santander, comprising 17.3% and 8.1% of the fund. April was HSBC’s best month in the last year as its share price held its upward trend, gaining 5.0%. Santander saw similar gains with its share price rising 5.6%.

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