A Short-Term Way To Play The Turnaround In European Banks

European banks was of the most maligned sectors in the world in 2017, at least in the headlines. June's Brexit, not to mention Deutsche Bank AG DB's September near-collapse, certainly didn't do a lot to help with sentiment.

But the tide looks like it's started to turn. The MSCI Europe Financials Index, whose top holdings include HSBC Holdings plc (ADR) HSBC, Banco Santander, S.A. (ADR) SAN, and Allianz SE (ADR) AZSEY, is up more than 12 percent this year.

Ongoing good fortune for European banks should increase the allure of the Direxion Daily MSCI European Financials Bull 2X Shares EUFL, which debuted 10 months ago as thefirst US-listed leveraged play on European banks. EUFL attempts to deliver double the daily returns of the aforementioned MSCI Europe Financials Index.

The index is "a free float-adjusted, market capitalization-weighted index and represents securities of large-capitalization and mid-capitalization companies across developed market countries in Europe,"according to Direxion, one of the largest issuers of inverse and leveraged ETFs. 

With the final round of France's presidential election slated for May 7^th and an upcoming election in the U.K., interest is increasing in EUFL. The ETF's volume for the five days ended April 28^th, was more than 153 percent above the trailing 20-day average, according to Direxion data. Only one Direxion leveraged ETF saw a larger increase in turnover during those five days. 

Top holdings in the index include Lloyds Banking Group PLC (ADR)LYG (24.39 percent), Bank of Ireland (ADR) IREBY (10.48 percent), HSBC (7.52 percent) and Barclays PLC (ADR)BCS (6.43 percent). Overall, over half the index is allocated to Britain, with Spain and Ireland having the second and third highest exposures. 

Interestingly, the strength shown by the banks in this index is not spreading to the entire industry. When it comes to some of the more popular names, fundamental concerns remain. 

“Barclays Plc, Deutsche Bank AG and UBS Group AG UBS are all expected to post smaller increases in fixed-income trading revenue than the collective 24 percent jump reported by their five largest American counterparts, analysts estimate," according to Bloomberg. "While the U.S. firms eked out a gain in equities trading from a year earlier, Europe’s banks are estimated to report an overall decline."

Traders willing to wager that the rebound for European banks is running on fumes can turn to the Direxion Daily MSCI European Financials Bear 1X Shares EUFS. EUFS is not leveraged, but it does deliver the daily inverse performance of the MSCI Europe Financials Index.