Small-Cap Bank ETFs Shining Through as Wall Street Languishes

Arone argued that the resilience of the U.S. economy and consumers will disproportionately benefit smaller banks. Meanwhile, larger banks are still suffering from a year of global volatile, notably the United Kingdom secession vote and China’s currency devaluation.

“We’re seeing the domestic economy acting much healthier than those overseas,” David Joy, the chief market strategist at Ameriprise Financial Inc., told Bloomberg. “When the economy is doing well and the markets rally, financials tend to be moving in a positive direction as well and that especially benefits those smaller-cap or regional companies.”

Related: Potential With a Small-Cap Bank ETF

Looking ahead, analysts project small-cap bank stocks to increase earnings by 22% this year and 11% in the next, compared to a 6% and 10% rise for those in the S&P 500.

Moreover, after underperforming the broader market, financials may soon get their moment in the sun as a value play.

“Financials have been suppressed and underweight this year,” Joy added. “But the way the market is shaping up, financials as a whole will do much better in the second half, and that would definitely move and carry the small caps to new levels.”

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PowerShares S&P SmallCap Financials Portfolio