The SPDR S&P Regional Banking ETF (NYSEArca: KRE), the largest regional bank exchange traded fund, just cannot seem to get out of its own way and some investors are not sticking around to see what comes next.
Monday was a strong day for the broader market, but KRE modestly declined, extending its year-to-date loss to 5.39%.
“Investors pulled $547 million from the $4 billion SPDR S&P Regional Banking ETF, ticker KRE, in November, its biggest monthly outflow since January 2015 and the second straight month of net withdrawals,” reports Bloomberg.
Rising interest rates historically benefit regional banks, but that has not been the case this year. Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.
Risk-tolerant traders who want capitalize on the short-term volatility have a number of leveraged and inverse ETF options to enhance potential returns. For instance, the Direxion Daily Regional Banks 3x Bull Shares (NYSEArca: DPST) can capitalize on short-term views on further strength in the financial sector, or the Direxion Daily Regional Banks 3x Bear Shares (NYSEArca: WDRW) can express short-term hedge of the opposite.
The Struggle Is Real for Banks
“Banks have come under pressure recently as investors worry that rising rates might slow lending and raise the amount the firms have to pay customers in interest,” reports Bloomberg.