As bond yields look to go up, up, and away, the Direxion Daily Regional Banks Bull 3X Shares (DPST) continues to climb too. The fund is up 90% so far this year.

“Rising bond yields benefit banks because this increases the net interest margin between what banks pay depositors and receive from borrowers,” Timothy Smith wrote in Investopedia. “Moreover, higher interest rates indicate that market participants are factoring in a faster economic recovery from the COVID-19 pandemic amid unprecedented levels of government stimulus – another positive for regional banks, which rely heavily on the health of the domestic economy.”

As for the fund, DPST seeks daily investment results equal to 300% of the daily performance of the S&P Regional Banks Select Industry Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

The index is a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the GICS regional banks sub-industry. The fund has certainly sprung to life the past six months in the regional banking sector, with DPST up over 300%.

Since December 7, 2020 when the 50-day moving average crossed above the 200-day moving average, the fund has risen over 100%. With the relative strength index (RSI) showing 73.99, momentum is obviously on the side of DPST.

DPST Chart

Regional Banks: More Main Street than Wall Street

Investors familiar with regional banks understand the nuances of the banking sub-sector. One of the reasons they are preferred over big banks is their close proximity to Main Street.

“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.

Right now, the market environment is rife for more gains in regional banks.

“The Main Street banks all have trends moving in a positive direction. Most people are thinking that on the other side of Covid — whenever that is — there will be pent-up demand for growth,” said Richard Schaberg, head of the US financial Institutions group at law firm Hogan Lovells.

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