Regional Bank ETFs for a Rising Rate Environment

Many are already shifting around their investment portfolios to adapt to potential rate hikes next year, but investors can capitalize on a rising rate environment with regional bank exchange traded funds.

Market observers argue that regional banks will profit from the onset of rate hikes in 2015 as banks’ operating models allow for larger return on loans, reports Elizabeth Schulze for CNBC.

“If you just look at rising interest rates, the regional banks will give you the most ‘bang for that buck’ so to speak,” Scott Miller Jr., a managing partner at Blue Bell Private Wealth Management, said in the article.

For instance, ETF investors can choose form a handful of regional-bank-specific ETFs, including the SPDR S&P Regional Banking ETF (NYSEArca: KRE), iShares U.S. Regional Banks ETF (NYSEArca: IAT) and PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR). [Not Believing Yellen, Regional Bank ETF Pops]

KRE takes an equally weighted approach, with its largest holding coming in at only 1.5% of the portfolio. KBWR also tracks an equal-weight index of regional banks. However, KRE has a slightly more diversified portfolio with 81 holdings, compared to KBWR’s 50 components.

IAT, on the other hand, takes a market-cap-weighted approach, with US Bancorp (NYSE: USB) accounting for 20.3% of the ETF’s underlying holdings, followed by PNC Financial (NYSE: PNC) 12.4% and BB&T (NYSE: BBT) 7.2%.