Asset exposure of Regional Banking ETFs varies greatly

Asset exposure of Regional Banking ETFs varies greatly

by Pininvest Analysis

Regional Banking ETFs on

  • constituents
  • 58.1% 1y performance
  • 32.4% volatility
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At the high end of the volatility range of our Finance ETFs Overview, Regional Banking has been persistent in signaling a shaky outlook of the US economy at the local level over the past year

Though unexceptional, Reginal Banking ETF performance has been solid, were it not for the sharp reversal from mid-March as the share price charts on pininvest clearly demonstrate

Taken together, it appears that the out of boundary Regional ETF volatility was front running monetary and economic uncertainties now shared across all Banking ETF categories – now in a range of 23-26% (annualized over the past 3 months) vs 15-17% over the past year

However, ‘Regional banking’ should not be understood uniformly across the qualifying ETFs

Because the exposure of the ETFs to smaller banks varies greatly depending on the weighting of their assets, fund performance and volatility ratios must be interpreted with caution

When assets are market weighted, a few large, well-capitalized institutions dominate -

  • this is the case with iShares U.S. Regional Banks ETF - with 1/3 of AUM allocated to 3 banks (and 50% to only 8 out of a total of more than 50 holdings) – insulating the fund from trends in smaller market and more fragile firms
  • First Trust NASDAQ ABA Community Bank Index Fund , also market weighted with a focus on smaller banks and thrifts, excludes the 50 largest banks from the fund to achieve community representation – with approx. 180 holdings

With equal weights, on the contrary, ETFs will be tilted towards very small, but numerous, institutions, painting a distinct picture of exposure to local economic – such is the case with

  • SPDR S&P Regional Banking ETF , the largest fund in our selection, including larger regional banks and approx. 120 holdings
  • SPDR S&P Bank ETF is invested in a representative selection of the entire banking industry, putting large entities on equal footing with regional banks – with approx. 75 holdings – KBE is the benchmark of our theme on the performance chart
  • PowerShares KBW Regional Banking Portfolio ETF , the smallest dedicated fund – with a focus on small banks and thrifts and approx. 50 holdings
  • PowerShares S&P SmallCap Financials Portfolio ETF casts a much wider net in the small cap finance by including banking (approx. 35%), equity REITS (approx. 20%), investment services, insurance and other real estate finance services, with approx. 120 holdings

Leveraged ETFs exposed to small and medium banks, such as Direxion Daily Regional Banks Bull 3X Shares and Direxion Daily Regional Banks Bear 3X Shares asset are not included because performance and volatility are of course out of range for our theme

Check our ' Commercial Banks Stable & Medium Risk’ theme for a selection of individual banks