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ETF Specialist

A Rough Road for Financial-Services ETFs

Sector's robust comeback takes a turn so far in 2014.

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In the first half of 2014, the market performance of the U.S. financial-services sector trailed the broader U.S. equity market by several hundred basis points.

Thus far this year, there have been some small bumps in the road for a sector that has enjoyed a robust comeback during the past five years, but where volatility remains meaningfully high and uncertainty even higher. While no one doubts that large banks, which dominate the financial sector, are far better capitalized than they were heading into the financial crisis, the final results in March of the Federal Reserve's annual stress test on the United States' 30 largest banks demonstrate both a lack of robustness on the part of some large lending institutions--including  Citigroup (C)--as well as the clear presence of a prominent headwind in the form of elevated compliance, regulatory, and legal costs across the industry.

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Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.