Regional Bank ETF

By: EconomyWatch   Date: 31 July 2009

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After the Financial Crises of 2008, investors have become more apprehensive about adding regional banking stocks to their portfolios. Diversified regional bank exchange traded funds (ETFs) are safer options for investors wanting to gain exposure to the banking sector. Other features that make regional bank ETFs more attractive than other funds are:

  • Lower cost (expense ratio)

  • Better transparency

Popular Regional Bank ETFs

Some of the popular Regional Bank ETFs are:

  • iShares Dow Jones US Regional Banks(IAT): This ETF seeks to mirror the price and yield performance of the Dow Jones US Select Regional Banks Index.

  • SPDR KBW Regional Banking fund: Listed under the ticker KRE, this ETF holds stocks of 50 regional banks. It seeks to replicate the returns of the KBW Regional Banking Index.

  • Regional Bank HOLDRS: This ETF is under the ticker RKH.

 

Performance of Regional Bank ETFs during and after the Financial Crisis of 2008

 

When the Financial Crises of 2008 started affecting the financial markets, regional bank ETFs resisted the downturn. Their performance remained fairly consistent, with occasional slips followed by quick recovery until May 2008. Following May, spiraling investor concerns over the housing sector and the effect of the credit crunch on regional banks resulted in the ETFs falling steadily to their lowest level for the year in July. However, these ETFs recovered to a level above or close to their 200-day moving average over the next couple of months. This quick and strong recovery in regional bank ETFs was the result of the nimbleness of the underlying scripts.

Although regional bank ETFs continued their seesaw movement in 2009, by May 14, 2009, several analysts had upgraded banking stocks from “in-line” to “attractive” for investors with a high risk appetite. The analysts had based their upgrade on:

  • The expectation that nonperforming loans would peak in the near term partly due to stabilizing jobless claims.

  • Analysts at Morgan Stanley had also predicted a decline in corporate borrowing rates due to improved liquidity in the credit markets and stiffening competition among lenders.

  • Most banks had reported their quarterly earnings, before write-downs, better than anticipated. This was expected to fuel the capital repair process.


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Most Popular in Exchange Traded Funds

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