BY MURRAY COLEMAN,(Investor's Business Daily)

If you've been following IBD's Big Picture column, you'll know financials have been showing signs of life.

As a result, some money managers are moving exchange traded funds focusing on that area to the top of their watch lists.

"At this stage, we're looking to stay more diversified in financials," said Nick Perry, an analyst at Schaeffer's Investment Research. "The interest rate picture is still up in the air."

Most financial ETFs, excluding those dedicated to real estate investment trusts, are heavily weighted in big banks, such as Citigroup (C) and Bank of America. The two ETFs that Schaeffer's is telling its individual and institutional clients to keep an eye on are SPDRs Financial Select Sector and iShares Dow Jones U.S. Financial Sector. 

"Conventional wisdom is that the flattening yield curve is going to hurt financials," said Perry. "But when you look at the charts of both those ETFs, both broke out (of bases) in February. They also hit new all-time highs."

Relative Strength Lags

Financial funds still have weak Relative Price Strength Ratings. Most fall in the 50s. In the past three months, financial-focused ETFs have started attracting more institutional attention. Their Accumulation/Distribution Ratings have moved up, with most scoring Bs.

"There are definitely more attractive areas of the market right now," said Bruce Zaro, chief technical analyst at Delta Global Advisors. "But sometimes we see a lag between an ETF's relative strength and its underlying stocks. Some financials seem to be moving in the right direction."

He's been paying attention to regional banks. "Those seem to be driving a lot of the recent run by financials as a whole," said Zaro.

The money manager hasn't bought into the group yet. "With a little improvement, we might start to dip our toes in that market," said Zaro. "They're definitely worth watching, especially if the Fed ends its campaign to raise interest rates."

Watching Regional Banks

HOLDRs Regional Banks is on his short list. It broke out in late February at 145. "A lot of these financial ETFs are breaking out after multiyear bases," said Zaro. "That's another reason to put these on your radar lists."

Other ETFs tracking the group include iShares Dow Jones U.S. Financial Services, Vanguard Vipers Financials and iShares S&P Global Financial Sector.

IBD breaks banking into six distinct industry groups in finance. All remain laggards, well down in the pack among 197 groups.

Contrast those with IBD's Investment Bankers at No. 13 and Investment Management at No. 38. Both have been gaining ground in the past 26 weeks.

That's why Jason Browne, a portfolio manager at DAL Investment Co., is watching StreetTracks KBW Capital Markets.  His firm oversees $1.6 billion in assets. It also runs five FundX mutual funds, which use ETFs.