Those familiar with KRE, the largest regional bank ETF, know the ETF’s utility and sensitivity to interest rates. After last year’s 47.5% surge, KRE has been experiencing that sensitivity to interest rates this year as 10-year Treasury yields have tumbled. KRE applies an equal-weight methodology to its 80 holdings, meaning the ETF is not dominated by just a few bank stocks as so many financial services are
Evidence suggests investors are again warming to financial services ETFs and are doing so in significant fashion. Over the past month, $854.3 million in new assets has flowed into the Financial Select Sector SPDR (NYSEArca: XLF). In just the past week, investors have allocated nearly $126 million in new money to KRE.
An improving U.S. economy could foster increased borrowing and financing by businesses, large and small, across the U.S. while benign mortgage rates could also provide a lift to the mortgage lending operations of regional banks. ETFs such as KRE benefit as rates rise because investors believe higher interest rates will lead to increased net interest margins for regional banks. [Rising Rates Plays Rise Again]
SPDR S&P Regional Banking ETF
ETF Trends editorial team contributed to this post.