For a good portion of 2013, financial services ETFs have been leaders among sector funds. That much is proven by an almost 23% year-to-date gain for the Financial Select Sector SPDR (NYSE: XLF). Year-to-date inflows to XLF of nearly $3.8 billion make XLF the top asset-gathering sector ETF.

Regional bank ETFs have been even better. 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. Improved U.S. economic data, including generally robust housing data, has also aided ETFs like the SPDR S&P Regional Bank (NYSEArca: KRE). KRE has climbed 28.1% this year. [Regional Bank ETFs in Focus as Rates Rise]

Another bank ETF to consider is the PowerShares KBW Bank Portfolio (NYSEArca: KBWB). Up 20.5% this year, KBWB is home to bank behemoths like Citigroup (NYSE: C), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC). In that order, those stocks combine for over a third of KBWB’s weight. [Regional Bank ETF: Leader Turning Laggard]

Even with that substantial allocation to America’s largest banks, few if any of which can be considered truly regional, the rest of KBWB’s 20-stock is heavily concentrated in more pure play regional banking names. That could bode well for $141.4 million ETF is interest rates continue to rise.

“However, unlike most corporations, banks tend to perform well in a rising rate environment. They borrow at low, short-term rates and lend at higher, long-term rates. And as interest rates rise, their profits increase from the widening spread. The Federal Reserve has stated that the discount rate will remain near zero until unemployment and inflation targets are met, which may not be until around 2015,” said Citrin Group analyst Reed Eckhout in an interview with Investor’s Business Daily.

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