Levered to the Economy, Regional Bank ETFs Are About to Explode

Regional banks that could be one of the prime beneficiaries of a global economic recovery. ETFs like the iShares U.S. Regional Banks ETF (IAT) are all ears.

One of the reasons is regional banks’ propensity to move with the ebbs and flows of the economy. When the economy is thriving, regional banks can trend higher and vice versa.

“The regional banks are closer to Main Street. You could argue that they have their thumb on the pulse of the real economy more than the ivory tower types on Wall Street,” said Donald Calcagni, chief investment officer with Mercer Advisors.

IAT seeks to track the investment results of the Dow Jones U.S. Select Regional Banks Index. The fund generally invests at least 90% of its assets in securities of the index and in depositary receipts representing securities of the index.

The underlying index measures the performance of the regional bank sector of the U.S. equity market and is a subset of the Dow Jones U.S. Bank Index. IAT comes with an expense ratio of 0.42%.

Summarily, IAT gives investors:

  1. Exposure to small- and mid-size U.S. banks
  2. Targeted access to domestic regional bank stocks
  3. Use to express a sector view

IAT Chart

Financial Stocks Are Getting Going Again

Regional banks could also benefit from rising rates should the Federal Reserve move away from their stance to keep rates steady as the economy improves. Profits from lending products, such as mortgage loans, could give regional banks more tailwinds.

“If you are looking for another sign that the economy is rebounding and that average Americans are finally starting to benefit, you should check out what’s happening with financial stocks,” a CNN article noted. “Shares of regional banks are thriving. Those small financial firms make most of their money from taking deposits and issuing mortgages and small business loans. That’s different from big Wall Street banks, which do significant business in stock and bond trading and in advising companies on mergers and IPOs.”

To further confirm the momentum in regional banks, the IAT is showing a reading of 62.04, which is below overbought levels using the relative strength index (RSI). Should IAT continue its upward climb, the current price could present an area of value for investors or traders looking for an entry point.

IAT Chart

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