Pros Want More Leverage in THIS Sector - InvestingChannel

Pros Want More Leverage in THIS Sector

Proprietary Data Insights

Financial Pros’ Top Bank ETF Searches in the Last Month

#1‘SPDR S&P Regional Banking ETF81
#2‘Direxion Daily Regional Banks Bull 3X Shares62
#3‘MicroSectors U.S. Big Banks Index 3x Leveraged ETN20
#4‘MicroSectors U.S. Big Banks Index -3x Inverse Leveraged ETN16
#5‘Direxion Daily Financial Bull 3X Shares10

Pros Want Extra Exposure to Regional Banks???

Will the Fed quit raising interest rates?

That’s what we gather from our Trackstar Data.

Financial Pros search volume for the 3x Leveraged Regional Bank ETF (DPST) surged in the last few weeks.

They certainly wouldn’t want exposure if their outlook had dimmed.

But is this the best way to play that thesis?

Let’s find out!

Key Facts About DPST

  • Net assets: $500 million
  • 12-month trailing yield: 2.85%
  • Inception: August 19, 2015
  • Expense ratio: 0.93%
  • Number of holdings: N/A

As the notes below suggest, the S&P Regional Banks Select Industry Index is an equal-weighted index comprised of regional banks in the S&P Total Market Index.

The DPST puts this idea in overdrive by giving holders exposure to 3x the daily move of the index.

This means if the regional bank index is up 1% on a given day, DPST should be up 3%.

Target Index

Source: Direxion

As we’ve suggested in the past, leveraged ETFs put long-term holders at a disadvantage for several reasons.

First, the ETF won’t match a 3x move of the underlying index over time. It’s a summation of the daily moves, creating a tracking error.

For example, if the index goes up 10% one day and down 10% the following day, it will be down 1% overall.

However, if the ETF goes up 30% one day and down 30% the next, it will be down 9%.

Secondly, these ETFs don’t own the stocks in the index. They use derivatives like swaps to give leveraged exposure. All things being equal, this costs more over time.

So, these leveraged ETFs are best used as short-term trading and hedging instruments only.


To that end, the overall performance of the ETF helps illustrate this point.

Over a 5-year period, the DPST is down 95.4% compared to the underlying index which is only down 17.1%.


Source: Direxion

Much of the declines came in this year after regional banks sold off en masse as worries about their solvency persisted.


Now, we thought it best compare DPST to other leveraged banking stocks as well as the main regional bank ETF.

  • SPDR S&P Regional Banking ETF (KRE): The KRE is the only unleveraged ETF on this list. It holds ~140 regional banks stocks, giving each equal weight.
  • MicroSectors U.S. Big Banks Index 3x Leveraged ETN (BNKU): If you wanted to only take leveraged plays on the biggest and baddest of the banks, like JP Morgan, BNKU gives you 3x leverage to the daily moves of these stocks.
  • MicroSectors U.S. Big Banks Index -3x Inverse Leveraged ETN (BNKD): On the flip side, if you wanted to bet against those big bank stocks, BNKD is the inverse of BNKU, with 3x inverse leverage to the daily move of these stocks.
  • Direxion Daily Financial Bull 3X Shares (FAS): FAS is one of the oldest 3x leveraged ETFs, with exposure to 3x the daily move a broad basket of financial stocks from banks to insurers.

One thing that’s clear form the data below, betting with leverage over time is a sure fire way to lose money.

However, even a straight bet on the KRE hasn’t been a big winner.


Our Opinion 3/10 

The leveraged ETFs cost more and perform poorly as long-term holdings.

Plus, the volume is small, with several, including DPST having less than half a billion under management.

A better way to gain leverage for or against regional bank stocks or banks in general is to use options on the KRE or the KBE respectively

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