As of Sept. 5, ETFs holding large banks significantly outperformed broad market indices year to date, with European banks having a standout year. Table 1 compares Financials ETFs, ranked by their year-to-date return as of September 5, 2025. The S&P 500 had a total return of 11.12% over the same period.
Large U.S. Banks Powered U.S. Financials Sector Returns in 2025
Large banks were the best performing of the biggest holdings in the U.S.-focused Financial Select Sector SPDR Fund (XLF), based on year-to-date returns as of Sept. 5, 2025. JPMorgan Chase & Co. was up 24.6% over the same period, making it the largest contributor to XLF’s returns this year. CFRA’s equity team is positive on JPM’s fundamental outlook but has a Hold rating based on current valuations. The team expects that any upside in JPM’s earnings will be due to higher fee service income from asset management and investment banking. The Goldman Sachs Group Inc. was up 30.4% year to date. The fundamental team currently has a Strong Buy on the stock since GS could benefit from a recovery in capital markets activity, particularly if private equity firms look to take some of their holdings public. The firm also has lower exposure to rate pressure, as only 19% of total net revenue is from net interest income. Additionally, Citigroup Inc. is well-positioned for growth, largely due to its cross-border footprint. Its treasury and trade solutions (TTS) service could benefit in the current policy environment, and its wealth management business had revenue growth of 20% year-over-year in the latest Q2 2025 earnings.
This projected growth in wealth management and global capital market activity has benefited ETFs holding large U.S. banks. As of Sept. 5, the Invesco KBW Bank ETF (KBWB) was up 17.8% year to date, with Morgan Stanley, Goldman Sachs, and Wells Fargo & Company as the three largest contributors to its returns. CFRA currently has an overweight position on the financials sector, and the fundamental equity team believes that C, GS, and MS are best positioned for 2H 2025.
Regional U.S. banks lagged larger peers on year-to-date return but performed well in the recent bank stress tests. This year’s stress tests were less severe than in prior years, leading to reduced banking capital requirements. The U.S. Federal Reserve is also considering making changes to the stress tests, such as extending the compliance cutoff date by three months and averaging the results over two years. CFRA views these proposed changes as positive for the industry, as they should lead to better long-term capital planning, more consistent capital returns, and higher returns on equity. Although the SPDR S&P Regional Banking ETF (KRE) underperformed KBWB year to date, CFRA has a positive outlook on the sub-industry and has Buy or Strong Buy ratings on several of its largest holdings, including Citizens Financial Group Inc., Regions Financial Corporation, and East West Bancorp Inc.
Non-U.S. Banks Have Had a Strong Year, with Europe Leading the Way
European banks and financial firms have had an outstanding 2025, thanks to strong loan demand and growing non-fee income. An effective proxy for this assessment is an examination of the holdings of the Themes Global Systemically Important Banks ETF, which includes large global banks from multiple geographic regions (see Table 2).
As an actively managed ETF, GSIB can invest in any global bank, and its current exposure is heavily tilted toward non-U.S. banks, with European banks accounting for all five of the largest year-to-date return contributors. GSIB was up 40.4% year to date as of Sept. 5, 2025, versus 11.1% year to date for the iShares Core S&P 500 ETF (IVV) and 14.7% year to date for the iShares MSCI ACWI ETF (ACWI). CFRA’s equity team believes that this outperformance can continue for the rest of 2025 and well into 2026, led by steady loan growth, stabilizing net interest margins, and a growing contribution from non-interest income. At a 1.2x price-to-book multiple, valuation seems expensive compared to historical multiples (five-year average of 0.79x), but we view this as justified by the sector’s improving profitability, strengthening capital position, and increasing shareholder remuneration.
Like in the U.S., fee income resurgence has strengthened European banks’ revenue diversification. Non-interest income streams are staging a modest rebound after a subdued 2024. Fee income from wealth management services grew by mid-single digits year to date, and capital markets revenues are buoyed by renewed M&A activity. Collectively, these lines of business, along with transaction banking fees, now represent about 31% of total revenues (up from 28% a year ago), providing diversification against interest rate swings.
We favor European banks that combine market leadership with clear digital transformation roadmaps and expanding fee income pools. CFRA currently has 4-STARS or 5-STARS ratings on several European banks currently held in GSIB and the iShares MSCI Europe Financials ETF (EUFN). Of the banks held in these ETFs, CFRA’s top picks include Banco Santander S.A., Intesa Sanpaolo S.p.A., and Banco de Sabadell S.A.
Looking Ahead
CFRA has Buy or Strong Buy ratings on several financial sector ETFs, including XLF, EUFN, KBWB, and GSIB, due to our positive outlook for large cap U.S. and European banks. A key trend to monitor is whether non-bank segments can also contribute to financial sector performance. The U.S. insurance sector-focused SPDR S&P Insurance ETF (KIE) and non-bank payment provider-focused Amplify Digital Payments ETF (IPAY) both lagged the broader financial sector year to date. CFRA currently has a Hold rating on the former but has a 5-STARS (Strong Buy) rating on the latter. We expect large stock holdings in IPAY like Visa Inc. and Mastercard Incorporated to be primed for long-term double-digit revenue growth. If those stocks can deliver stronger returns going forward, then financial sector ETFs appear well-positioned to continue their market outperformance over the next 12 months.
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