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Are Regional Bank ETFs Best Positioned to Profit from a Trump Presidency?

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Investors have been quite bullish on bank stocks since the election. They’re hoping that high fiscal spending and a lighter regulatory environment would be really good for banks.

Even before the election, bank stocks had started outperforming the broader market, as the possibility of a rate hike continued to rise. Many Fed officials have recently suggested that the Fed is about to start raising rates again.

Their main agreement is that the economic growth has been picking up, labor markets have been tightening and wage growth has also started inching up. So, there is no reason to keep rates at ultra-low levels now. Fed fund futures now indicate a 90% probability of a rate hike next month.

Higher interest rates and a steeper yield curve benefit banks’ profitability. Regional banks will benefit more from a steepening yield curve since interest rate spread is their main source of earnings.

It also appears that smaller banks may benefit more from any regulatory easing than the large ones. Say, if they raise the threshold for stress tests, many mid cap banks will not be subjected to these tests, which will be a major cost saving for them.

Since many investors are looking at regional bank ETFs now, I thought it would be a good time to discuss the ETFs options available in this space and differences between them

Ticker ETF Name Expense Ratio AUM (Million) Weighting YTD Return
KRE SPDR S&P Regional Banking ETF 0.35% $2,753.69 Equal-weighted 22.9%
IAT iShares U.S. Regional Banks ETF 0.44% $364.08 Market-cap weighted 21.8%
KBWR PowerShares KBW Regional Banking Portfolio ETF 0.35% $151.68 Equal-weighted 26.9%
To learn more about SPDR S&P Regional Banking ETF (KRE - Free Report) , iShares U.S. Regional Banks ETF (IAT - Free Report) and PowerShares KBW Regional Banking Portfolio (KBWR), please watch the short video above.

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