Proprietary Data Insights Financial Pros’ Top Semiconductor ETF Searches in the Last Month
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Pros Pick Their Top 5 Financial ETFs
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Technology companies led markets higher for the past several years. Lately, we’re seeing signs of a rotation into financial stocks. According to our TrackStar data, financial pros increased their searches for banks in June while decreasing searches for tech companies. Interestingly, the top financial ETF search is the S&P Regional Bank ETF KRE. Folks remember this ETF from the crisis a few years back that took down Silicon Valley Bank. Year-to-date, the stock is down 6.7%. However, it gained almost 4% in the past week. With the Fed poised to cut interest rates in the next year, the KRE could make an interesting trade. Key Facts About SMH
The KRE is the market’s most well-known and actively traded regional banking ETF. With 142 holdings equally weighted, the ETF focuses on regional banks that are generally limited in geography and have assets between $10 billion and $100 billion. Many of these banks focus more on local lending, whereas national banks do more wealth management and commercial services. This makes regional banks more sensitive to interest rate changes. And generally speaking, higher rates favor banks because the spread between what they pay depositors and what they lend is greater. However, that paradigm has shifted, with banks being forced to raise deposit rates to lure in cash. So, lower rates would actually benefit regional banks by boosting borrowing activity. Performance The regional banking crisis lopped off a chunk of gains the sector has yet to make back. Thus, it’s only up about 6.4% over the past five years.
However, individual banks within the sector have fared better, especially those with less exposure to short-term interest rates. Competition We stacked up the KRE against other popular financial ETFs including the XLF to give you a sense of the investment choices out there.
The KRE significantly underperforms the broader financial sector in the U.S. and Europe. It also has a slightly higher expense ratio than the broader financial sector ETF. Our Opinion 7/10 Relative to the other financial ETFs, the KRE is good but not great. It pays a healthy dividend and provides plenty of liquidity. However, its performance is abysmal, and the equal-weight approach prevents it from gaining any real traction. With lending and finance moving more towards larger institutions, the KRE ETF will keep playing second fiddle to the XLF. |
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