As the viewing public turned towards the Oscars over the weekend, investors and market watchers were worried instead by bad news coming for the banking sector. While the extent of contagion risk from the run at Silicon Valley Bank (SVB) has yet to be fully determined with support measures en route from the government, investors may want to brush up on how banking ETFs may actually benefit from bullish sentiment in the banking sector.
Yes, bank stocks have started the week with some difficulty, as First Republic Bank (FRC) in particular saw a notable dropoff even as U.S. regulators have signaled they would take emergency measures to limit the pain. But that doesn’t mean that investor interest in banking ETFs has to dry up — according to VettaFi’s editor-in-chief, Lara Crigger, bearish situations often produce buying and research behavior that moves in the opposite direction.
Advisor engagement data from VettaFi underscores that point – right now, the five ETFs with the highest increase to month-over-month (MoM) engagement from advisors have been banking ETFs, with the leveraged Direxion Daily Regional Banks Bull 3x Shares ETF (DPST ) seeing the largest MoM engagement spike at nearly 500%.
DPST, which basically offers investors a 3x edition of the SPDR S&P Regional Banking ETF (KRE ) which has itself seen a 288% spike, has added $16.6 million in one month net inflows, spiking to $15.7 million in just the last five days according to VettaFi. DPST charges a 93 basis point fee. Notably, DPST is a 3x version of an ETF, KRE, that held SVB as its largest holding.
| Name | AUM ($MM) | MOM Engagement |
|---|---|---|
| Direxion Daily Regional Banks Bull 3S Shares (DPST ) | $144.00 | 491% |
| SPDR S&P Regional Banking ETF (KRE ) | $2,385.00 | 288% |
| iShares U.S. Regional Banks ETF (IAT ) | $666.00 | 253% |
| First Trust Nasdaq Bank ETF (FTXO ) | $211.00 | 203% |
| Direxion Daily Financial Bear 3X Shares ETF Liquid error: undefined method `strip' for nil:NilClassFAZ) | $172.00 | 196% |
Closing out the list of the top five are the trio of the banking ETFs. The iShares U.S. Regional Banks ETF (IAT ) saw a 253% increase to engagement, charging 39 basis points for exposure to larger banks with an average market cap of about $35 billion in its index.
Meanwhile, the First Trust Nasdaq Bank ETF (FTXO ) rose 203%, targeting the more liquid bank stocks on offer in the market via its index, the NASDAQ US Banks Index. Charging 60 basis points, its approach may make it an appealing option in a bank run environment give how liquid its holdings can be with the likes of Wells Fargo and J.P. Morgan.
The fifth ETF is a leveraged strategy that may fit the concern of some investors watching the markets right now, the Direxion Daily Financial BEAR 3x ETF (FAZ ), which saw advisor MoM engagement rise about 196% per VettaFi data. FAZ charges 109 basis points, but has offered investors some notable outperformance via its 3x daily short leverage to the Russell 1000 Financial Services Index, returning 33.5% over the last month.
Bank news may be scary right now, but the future is unwritten. With the variety of banking ETFs available offering both bull and bear perspectives on the sector, investors may want to keep track of their options and where advisor eyes are engaging.
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