Exchange traded funds that invest in preferred shares and regional banks have been leading the recent gains in the financial sector.
Over the past week, SPDR S&P Bank ETF (NYSEArca: KBE), PowerShares KBW Bank Portfolio (NYSEArca: KBWB), SPDR S&P Regional Banking (NYSEArca: KRE) and iShares DJ US Regional Banks (NYSEArca: IAT) are among the top-performing unleveraged ETFs, gaining 4% or more.
Additionally, preferred stock ETFs such as iShares S&P U.S. Preferred Stock (NYSEArca: PFF), which sport attractive dividend yields, have made a move to the upside to start 2012. The funds have heavy sector concentrations in the financials. [Bank Rally Lifts Preferred Stock ETFs]
In regional banks, the ETFs are challenging their highest level since early 2011. Some options traders have been using call options on the ETFs to position for a rally in the sector. [ETF Chart of the Day: Regional Banks]
Smaller regional banks have been outperforming their large-cap brethren in recent months. The first chart below shows the ratio of the SPDR S&P Regional Banking ETF against the large-cap SPDR S&P Bank ETF.
