Momentum investing and regional banks appear to be joined at the hip. To continue playing this strength in the second quarter of 2021, investors can look at the iShares U.S. Regional Banks ETF (IAT).

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. The fund is up over 30% as the U.S. economy continues to rebound, which could result in higher interest rates.

These higher rates could mean more revenue for regional banks offering loan products. One of the issues facing regional banks right now is loan growth, but according to a Bloomberg article, they’ve found a way to combat that: mergers.

IAT Chart

Merging and Earning

The Bloomberg article noted that “regional banks have combined in recent months to help grapple with weak loan demand as well as low interest rates and the need to boost technology spending. Pressure is coming from JPMorgan and the nation’s other top lenders, which are moving into new states and spending billions annually on digital offerings.”

The move to merge appears to be working thus far in the first quarter of 2021.

“Even with the slow growth in their lending businesses, regional banks were able to boost earnings in the first quarter, buoyed like their bigger counterparts by the speed of the economic recovery and the ability to release reserves they had previously set aside for bad loans,” the Bloomberg article added.

“As we head into the second half, we will have a snap-backed economy,” Truist Financial Corp. Chief Executive Officer Kelly King told analysts on an earnings call.

Broader Financials Exposure

Investors can snag broad financials exposure via the iShares U.S. Financials ETF (IYF). The fund seeks to track the investment results of the Dow Jones U.S. Financials Capped Index composed of U.S. equities in the financial sector.

The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index measures the performance of U.S. companies in the financial sector.

IYF offers:

  1. Exposure to U.S. banks, insurers, and credit card companies.
  2. Targeted access to domestic financial stocks.
  3. Use to express a sector view.

For more news and information, visit the Equity ETF Channel.