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Regional Bank ETFs: What Investors Need to Know

Eric Dutram

In today’s video, we take a deeper dive into the financial sector, as this key market segment is actually much improved as of late. The broad sector ETF, XLF, is actually beating out the S&P 500 in recent sessions, something that we weren’t able to say immediately following Brexit or in the face of plunging interest rates.

But thanks to rate hike prospects looking up and broad strength from the economy, investors are finally placing bullish bets on the sector again. This is especially true in the regional banking world, as this segment is leading the financial sector higher as of late.

Why Regional Banks?

Regionals tend to be more focused on ‘traditional’ banking activities and thus, heavily impacted by a changing rate environment. That is why when the possibility of a rate hike goes up, these companies benefit more than most.

After all, companies in this sector borrow money at short term rates, while they receive income in the form of interest on longer term loans. So the wider the spread between these two numbers the better for regional banks.

How to Play

While there are a number of individual stocks targeting this market, there are also a trio of ETFs focused on the space. And while all they might seem the same at first glance, there are actually some key differences to note, which we take a closer look at in the video.

In particular, we take a look at IAT, KRE, and KBWR which each focus on regional banks. While KRE is easily the most popular, it has a very different exposure profile when compared to IAT, focusing more assets on mid-sized companies. Meanwhile, KBWR has an even smaller focus, zeroing in on companies that are afterthoughts in the large-cap focused IAT, and glossed over in KRE too.

This shift of focus can have a big impact on returns, and it can also drastically impact volatility levels too. We also take a quick look at the expenses for each of these funds, and discuss which product might be right for which type of investor. Watch the video for more details!

Bottom Line

Regional banks appear a little better positioned these days and there are several ETFs tracking the market. These funds aren’t the same though, and each one is built for a different type of investor with a different focus.

Make sure to watch the video for more details about these key differences, and sign up for our free fund newsletter below for additional ETF and Mutual Fund information each week.

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SPDR-FINL SELS (XLF): ETF Research Reports
SPDR-KBW REG BK (KRE): ETF Research Reports
ISHARS-US RG BK (IAT): ETF Research Reports
PWRSH-KBW RBP (KBWR): ETF Research Reports
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