Bank ETFs

An ETF that just celebrated its first birthday has been extremely active in terms of trading volume lately, KBWB (PowerShares KBW Bank Portfolio).

The ETF which launched in November of 2011, normally trades approximately 923,000 shares on a daily basis, but has had at least three sessions in the past 7 trading days with a heavy increase in volume, including one day where nearly 10 million shares exchanged hands.

Accompanying the acceleration in trading volume in this name has been asset inflows, as we have observed more than $180 million flow into the fund in recent days.

As its name suggests, this ETF tracks the KBW Bank Index which consists of publicly traded banks or thrifts, with current top holdings appearing as the following: BAC (8.60%), C (8.42%), JPM (8.06%), WFC (7.61%), and USB (7.53%). If a theme here is not apparent, it should be, as we have highlighted strong asset flows into Financial Equity based ETFs throughout 2012. The largest ETF in the space, XLF (SPDR Financials) has attracted more than $1.4 billion in creation flows YTD.

It is also possible that portfolio managers are taking a hard look at the specific portfolio exposure that they have going into year’s end, and using ETFs in a winning sector (Financials as measured by XLF have rallied an impressive 24.81% YTD versus the broad market S&P 500 up 13.93%) via “tax swaps,” which has become increasingly common in recent years among portfolio managers that are presiding over taxable accounts.