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Number Cruncher

Signs of life in U.S. banking sector Add to ...

What are we looking for?

Big money-makers among exchange-traded funds in the first quarter.

The screen

We ranked the 15 top performers this year to March 31 among Canadian-listed ETFs. We excluded those that can short or bet against a sector, and leveraged ETFs, which can amplify long and short bets on the market.

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What did we find?

The battered U.S. banking sector leaping back to life.

BMO Equal Weight U.S. Banks ETF (hedged to Canadian dollars) was the star, gaining a robust 26.8 per cent.

U.S. financial stocks took flight after the U.S. Federal Reserve Board announced last month that 15 of the largest 19 American banks passed “stress tests” showing they have sufficient capital to weather a severe economic crisis. Clearing this hurdle paved the way for many banks bailed out by the U.S. government during the 2008-09 credit crunch to also raise dividends and buy back stock.

“This has provided a tailwind for the sector,” said Alfred Lee, an investment strategist for BMO ETFs at Bank of Montreal. “The banking sector is remarkably healthier than in 2009 when roughly half of the banks failed.”

Stress-test passers that were among the top holdings in this top-performing ETF included Bank of America Corp., whose stock jumped 72 per cent in the quarter. “It was helped by an improvement in the municipal bond market where it was the top underwriter,” he said.

Regions Financial Corp., whose shares rose 53.3 per cent, plans to repay $3.5-billion (U.S.) related to the Troubled Asset Relief Program (TARP), the U.S. government’s bailout package. The stock of JPMorgan Chase & Co., which raised its dividend last month, shot up 38.1 per cent.

While an improving U.S. economy and more stability in the euro zone are positives for the financial sector, “individual banks may see bumps along the way,” Mr. Lee said. The BMO U.S. bank ETF includes 14 banks that are weighted equally, giving investors exposure to the sector without emphasizing any one bank, he added.

Three ETFs tracking the Nasdaq 100 Index gained 21 per cent in the quarter. This index was lifted by technology stocks such as Apple Inc., whose shares shot up nearly 50 per cent. The maker of the iPad and iPhone devices said last month that it planned to pay a quarterly dividend.

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