Market Overview

Bullish Catalysts Are Boosting These Regional Bank ETFs

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While the market fell almost 2 percent on Friday, the regional bank sector bucked the trend as it was the only sector to finish in the green.

The strength can be attributed to two major factors, Fed stress tests and rising interest rates.

The Fed revealed that all 31 of the largest banks have enough capital to weather losses in the event of an economic downturn -- the first time every bank has passed the central bank's annual stress tests.

The largest U.S.-based banks "continue to build their capital levels and to strengthen their ability to lend to households and businesses during a period marked by severe recession and financial market volatility," the Fed said on Friday.

An interest rate hike by the Fed would lead to the regional banks being able to charge more to lend money, thus increasing their bottom line margins.

Affected Regional Bank ETFs

1. The iShares U.S. Regional Banks ETF (NYSE: IAT), which consists of 53 small and mid-sized domestic regional U.S. banks.

Top holdings include U.S. Bancorp (NYSE: USB) with a large weighting of 19.8 percent, PNC Financial Services Group Inc. (NYSE: PNC) with 12.2 percent and BB&T Corp (NYSE: BBT) with 6.9 percent.

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IAT is up 2 percent over the last 12 months and up 5 percent over the last six months.

The ETF came close to breaking out to its highest level since 2008, but failed to follow through. A close above $35.81 would be a major breakout and Buy signal. The ETF has an expense ratio of 0.43 percent.

2. The SPDR S&P Regional Bank ETF (NYSE: KRE), which is made up of 86 regional banks with diverse weightings.

The top three holdings all have a weighting of 1.6 percent, and they include BankUnited Inc (NYSE: BKU), City National Corp (NYSE: CYN) and First Republic Corp (NYSE: FRC).

KRE is down 2 percent over the last 12 months and up 4 percent over the last six months. The breakout level on KRE is $42.79, and the ETF has an expense ratio of 0.35 percent.

3. The PowerShares KWB Regional Banking Portfolio ETF (NYSE: KBWR), which provides investors exposure to 50 U.S.-based regional banks.

The top holdings include SVB Financial Corp (NYSE: SIVB) with a 4 percent holding, Umpqua Holdings Corp (NYSE: UMPQ) making up 3.6 percent and First Niagara Financial Group Inc. (NYSE: FNFG) with 3.2 percent.

KBWR is down 1 percent over the last 12 months and up 5 percent over the last six months.

The breakout level for KBWR is $41.52, and the ETF has an expense ratio of 0.35 percent.

Posted-In: Long Ideas Sector ETFs Trading Ideas ETFs

 

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