Regional banks don’t seem to mind that rates are rising. That’s evident in leveraged ETFs like the Direxion Daily Regional Banks Bull 3X Shares (DPST ), which is up 35% within the past year.
With the economy regaining its strength after standing on shaky ground amid the pandemic, the Federal Reserve is easing off its stimulus measures. In tandem with reduced bond purchases, the capital markets were already bracing themselves for the inevitable: rising rates.
That became even more evident as consumer prices started to rise. With inflation, a tighter monetary policy was expected as the economy returned to form.
Just how hawkish the Fed will be with respect to rising rates is on the radar of investors. While consumers may not like the idea of rising rates, banks certainly don’t mind.
Rising rates could equal more revenue for banks, especially those that rely on consumer lending products like loans. As such, ETFs that focus on the banking sector have been benefiting with indexes like the S&P 500 Banks up 21% within the last 12 months.
“Rising U.S. Treasury yields and expected interest rate hikes this year bode well for the banking sector,” an Entreprenuer article notes.
Triple the Leverage
Traders looking to amplify their gains can use leveraged funds. Funds like DPST that have triple the exposure should only be used by seasoned investors.
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. Signs of life are starting to show in the fund’s YTD chart, with the price moving above its 50-day moving average of late.
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