VettaFi’s vice chairman Tom Lydon discussed the SPDR S&P Regional Banking ETF (KRE ) on this week’s “ETF of the Week” podcast with Chuck Jaffe of Money Life.
KRE is a timely pick for ETF of the Week as turmoil in regional banks continues, with regional banking stocks still moving lower.
“I think everybody, including individual investors, corporations, those that are in the banking business or investment business, have been paying attention to what has gone on and regional banks this last week,” Lydon said.
With $2.1 billion in assets under management, KRE is the largest regional banking ETF. Regional banks outperformed the broader financials sector over the last couple of years as they tend to hold up well during times of rising interest rates.
“During times of rising interest rates, they’re able to charge more for mortgages in the regional area, car loans, credit cards,” Lydon said. “There’s more money that comes into regional banks during higher interest rates from a percentage standpoint than the bigger banks because the bigger banks also have asset management and trading income that can also help their top line and their bottom line, where lending tends to be the main income stream for regional banks.”
Lydon said in early March, KRE and most of its regional banking ETF peers fell below their 200-day moving averages. Thus, for disciplined investors that were trading KRE or were following a 200-day strategy, they wouldn’t have owned it. This last week would be a situation where they would have avoided major loss, and at the same time, might be able to do some bottom picking.
While no one really knows all the time when something is a good buy, using a trendline makes a lot of sense and helps remove the emotion, Lydon said.
“If you’re following the 200-day average, it’s going to take a while for the current 200-day average to decline to the point where it can catch up to the current pricing,” Lydon said. “However, another thing you could do is use a shorter term moving average, like a 50-day average, which is going to catch up a lot quicker, so you’re going to have to be more nimble; shorter term moving averages actually require more discipline, more trades. And they also get more whipsaws, meaning, not every buy and sell is going to end up being the right move.”