A Sense of Community, Banks That is, With This ETF

Perhaps betrayed by its name, the First Trust NASDAQ ABA Community Bank Index Fund (NasdaqGM: QABA) goes overlooked compared to other financial services exchange traded funds.

With “community bank” dwelling in its name, it is easy to understand why skittish investors might skip over QABA in favor of a more traditional bank ETF that is loaded with institutions that are perceive to be financially sturdier than QABA’s 135 holdings. [A Look at Community Bank ETFs]

After all, nearly 300 banks, mostly of the community variety, failed in 2009 and 2010 combined. That was followed by another 92 in 2011, but that number fell dramatically to just 24 last year.

There are factors to consider with QABA, not the least of which is the ETF’s 31.4% gain over the past year, which is on par with that of some traditional regional banking ETFs and superior to that of funds littered with large-cap national banks.

While QABA’s holdings have a median market value of $663 million, which is distinctly small-cap, the ETF does not lack for financially sound banks that could currently be offering investors upside potential. Constituent companies must have market values of at least $200 million and average daily volume of at least $500,000.

On Monday, we highlighted the potential of mid-cap California banks with exposure to the state’s metropolitan areas. Keefe, Bruyette and Woods says a “brisk real estate market recovery and improving economic fundamentals” in the state’s metro areas make the firm constructive on California’s mid-cap banks this year.