A rising interest rate environment will throw a wrench into the financial markets. Nevertheless, bank-related exchange traded funds could weather the storm as financial firms have positioned ahead of the potential rate changes.
With a Federal Reserve rate hike expected as soon as the September meeting, Credit Suisse analysts favor JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC) and Goldman Sachs Group (NYSE: GS) in the large-cap space; BB&T (NYSE: BBT) and KeyCorp (NYSE: KEY) in the midcap space.
ETF investors have a number of Bank-related options available to gain diversified exposure to the space. For instance, 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) all include more mid- and small-sized banks. Additionally, the SPDR S&P Bank ETF (NYSEArca: KBE) leans toward slightly larger companies. [Resurgent Regional Bank ETFs]
KRE, the largest regional bank ETF, increased 4.2% year-to-date. KRE has a large tilt toward smaller banks, including 18.5% micro-caps, 53.8% small-caps and 24.0% mid-caps. The fund includes a 1.2% position in KEY and 1.2% in BBT. [Small Bank ETFs Begin Outpacing Wall Street Bankers]
KBWR rose 4.9% year-to-date. The fund also focuses on the smaller segment, including 12.3% micro-caps, 69.2% small-caps and 18.6% mid-caps.
IAT gained 3.0% year-to-date. The ETF includes 19.2% small-caps, 36.4% mid-caps, 24.9% large-caps and 19.5% mega-caps. KeyCorp is 3.2% and BBT is 7.1% of IAT’s portfolio .