A gain of 1.7% is not uncommon for any number of financial services exchange traded funds, but consider this: The SPDR S&P Regional Banking ETF (NYSEArca: KRE) did that on Monday, two days before a major holiday and on volume that was nearly twice the daily average.
Adding to the significance of KRE’s Monday performance is that it puts the ETF within spitting distance of $41, a level the $2.75 billion ETF has not closed above since September 2008. From there, $42 would of course enter the conversation and that is a price point that KRE has not closed above since October 2007.
KRE has surged nearly 40% this year, boosted in part by a groundswell of positive sentiment toward the financial services sector at large. There is more to the story, though. As other sector and industry ETFs have been plagued by rising interest rates, KRE and its regional banking rivals have benefited. [A Rising Rates ETF Portfolio]
Rates could rise some more next year and regional banks could still have their moment to shine. Funds with exposure to regional banks have actually benefited from rising interest rates because investors believe higher interest rates will lead to increased net interest margin for regional banks. [Regional Bank ETFs Break to New Highs]
KRE is not alone in giving ETF investors reason to cheer about regional banks. The PowerShares KBW Regional Banking Portfolio (NYSEArca: KBWR) is up nearly 40% this year and touched a two-year high Monday. KRE is home to 81 stocks, none of which account for more than 1.5% of the fund’s weight. KBWR has 50 holdings, none of which have a weight north of 3.4%.