In case you missed it, regional bank stocks and
have recently been stellar performers. The SPDR S&P Regional
Banking ETF (NYSE:
) is the king among regional bank ETFs.
Recent inflows to KRE highlight as much as. At the end of May,
the ETF had $1.5 billion in assets under management, but heading
into the start of trading Monday, that number had swelled to
nearly $2 billion.
Those inflows combined with KRE's bullish performance, the ETF
is up 9.5 percent in the past month, indicate that investors have
been embracing regional banks as plays on rising interest rates
and that the stocks have been delivering. Net interest margin, or
the spread between the average yield on loans and securities
investments and a bank's borrowing deposits costs, has pressured
earnings power for regional banks, but a steepening yield curve
could mitigate further NIM downside,
according to ETF Trends
With second-quarter earnings season here and expectations in
place that the financial services sector will be one of just a
to provide noticeable upside surprises
, investors may want to consider KRE or its rivals sooner rather
than later. Here is a look at some unheralded alternatives to
iShares U.S. Regional Banks ETF (NYSE:
) While KRE is more of an equal-weight ETF with healthy
allocations to true regional banks, IAT is a play on super
regional names such as US Bancorp (NYSE:
), PNC Financial (NYSE:
) BB&T (NYSE:
) and M&T Bank (NYSE:
). Overall, IAT is not as big as KRE either by assets ($458
million) or holdings (58 compared to 79 in KRE), but IAT is no
slouch in terms of returns.
The ETF is up 7.3 percent in the past month and has already
traded twice its average daily volume as of this writing on
Monday. Here is a hidden advantage of IAT: It can help ordinary
attempt their best Warren Buffett impressions
. Two of the ETF's top-10 holdings, US Bancorp and M&T, are
also large holdings at Berkshire Hathaway (NYSE: BRK-A). Those
stocks combine for almost 23 percent of IAT's weight.
PowerShares KBW Regional Banking Portfolio (NYSE:
) Investors looking for a small-cap approach to regional banks
should consider the PowerShares KBW Regional Banking Portfolio.
KBWR's 50 holdings have an average market value of $1.85 billion
and 61.1 percent of those names are considered small-cap value
names. The ETF holds no large-cap stocks.
With just $26 million in AUM, KBWR is the type of ETF that
would be met with size criticism. That is a shame and unwarranted
because as is the case
with ETFs tracking brokerage houses
and investment banks, there are some small ETFs offering big
returns with regional banks.
KBWR is one of them as the ETF is up 10.2 percent in the past
month. The fund may have more in the way of near-term upside
potential because it currently resides below $35, well below its
52-week high of $40.51. Despite its size, KBWR does not trade
with wide bid/ask spreads (a penny wide at this writing) and
rarely (almost never) sees the mid-point of that spread go
noticeably above or below the fund's net asset value,
according to PowerShares data
For The Adventurous Yes, there really is a leveraged play on
regional banks and it is the ProShares Ultra KBW Regional Banking
). KRU is designed to deliver twice the daily performance of the
KBW Regional Banking Index, the same index tracked by KBWR. KRU
has actually done better than that. Over the past three months,
KBWR is up 14.1 percent, but KRU is up 32 percent.
Folks are starting to take note of KRU as the ETF is up on
more than 17 times the average volume Monday. KRU has a bearish
equivalent in the form of the ProShares Short KBW Regional
), though KRS is not leveraged.
For more on ETFs, click
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