A Targeted ETF Idea for a hot Sector

“The financial sector is widely considered one likely to benefit from the new political order. One of the more intriguing subsets of the sector is regional and community banks,” according to a Seeking Alpha analysis of bank ETFs holding smaller and mid-cap names.

QABA’s three-year standard deviation and beta are slightly below that of the S&P Composite 1500 Financials Index and banks “must meet certain operating history, solvency, and financial statement requirements to remain eligible for inclusion in the index,” according to First Trust. Constituent companies must have market values of at least $200 million and average daily volume of at least $500,000.

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 community and regional banks.

Predictably, much of the bull case for regional and community banks, such as those found in QABA, depends on the Federal Reserve and interest rates. With a steepening yield curve or wider spread between short- and long-term Treasuries, banks could experience improved net interest margins or improved profitability as the firms borrow short and lend long.

For more information on bank stocks, visit our financial category.