Hello! This week’s ETF Wrap shines the light on banking ETFs after March’s brutal selloff and as banks deliver their first-quarter earnings.
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Investors may still be licking their wounds from last month’s bank failures.
Shares of SPDR S&P Bank ETF
KBE,
The SPDR S&P Regional Banking ETF has seen a tiny outflow of about $3 million over the past week through Wednesday, with $895 million of withdrawals over the past month, according to FactSet data. And the broader SPDR S&P Bank ETF has attracted only around $7 million of inflows over the past week through Wednesday, with investors pulling slightly more than $2 million over the past month.
Investors “can breathe a sigh of relief that we haven’t seen another shoe drop in recent weeks, but we are still in a rising interest rate environment that could be problematic for the industry in general,” said Todd Rosenbluth, head of research at VettaFi, by phone. “There remains uncertainty about what’s next for the space.”
Banks recently began reporting results for the first quarter, with major Wall Street firms kicking off company earnings season at the end of last week. Based on ETF flows, investors appear more comfortable with big banks and more diversified exposure in the financial sector since the regional banking turmoil seen after the collapse of Silicon Valley Bank and Signature Bank, according to Rosenbluth.
Large banks JPMorgan Chase & Co.
JPM,
“Investors are gravitating towards the ETFs that are more concentrated toward the larger banks,” said Rosenbluth, pointing to recent inflows into the Financial Select Sector SPDR Fund.
Because the Financial Select Sector SPDR Fund
XLF,
The SPDR S&P Bank ETF and SPDR S&P Regional Banking ETF each track equal-weighted indexes of U.S. bank stocks.
The Financial Select Sector SPDR Fund has seen around $541 million of inflows in the past week through April 19, attracting $712 million over the past month, according to FactSet data.
The fund is “definitely more diversified,” said Aniket Ullal, head of ETF data and analytics at CFRA Research, by phone. “It’s much more resilient” in the wake of the regional-banking tumult, he said.
The SPDR S&P Bank ETF’s fact sheet shows that regional banks represented about 75% of the fund’s weight at the end of December, with SVB Financial Group, the parent of recently failed Silicon Valley Bank, listed as its top holding at the time.
Banking-sector shares were broadly hurt last month, with the SPDR S&P Regional Banking ETF suffering steeper losses so far this year than the SPDR S&P Bank ETF.
“On April 3rd we highlighted our belief that the KRE was poised for a +20% bounce that should be faded as it broached $50,” Renaissance Macro Research said in a note Thursday, referring to the ticker of the SPDR S&P Regional Banking ETF.
“We’re still in that camp, but it has taken 2-weeks for the oversold condition to start to exhibit a shift in the bull/bear dynamic,” said RenMac.
The SPDR S&P Regional Banking ETF remains deep in the red in 2023 with a loss of 24.6% this year through Wednesday, according to FactSet data. This week, the fund was up 4.7% through the same date for a month-to-date climb of 1%.
“One of the consequences of the regional bank crisis was more deposit inflows into the larger banks and more confidence in the larger banks” as opposed to community and regional banks, said Ullal.
Read:KeyCorp’s, Comerica’s and Zions’ stocks slide as lost deposits weigh on earnings
Meanwhile, the Roundhill Big Bank ETF
BIGB,
“It was well-timed in coming to market for people who want to concentrate in just the heavyweights,” said Rosenbluth, of the recently launched fund.
This week, shares of the SPDR S&P Bank ETF were up 4% through Wednesday, but remained down around 16% for the year, according to FactSet data.
The Invesco KBW Bank ETF
KBWB,
This is not the global financial crisis of 2008, “but the banking issues are not resolved,” said Ronald Temple, chief market strategist at Lazard, in a note Wednesday. “Depositor confidence in the banking system has been shaken, and the SVB failure highlighted a glaring deficiency in the structure of U.S. deposit insurance.”
SVB, or Silicon Valley Bank, failed last month after a run on the bank. Taking emergency action, the Federal Reserve, U.S. Treasury Department and Federal Deposit Insurance Corp., which insures deposits up to $250,000, stepped in to protect all its depositors.
The deficiency in U.S. bank deposit insurance is “the idea that any depositor with over $250,000 should have the financial acumen of a bank credit analyst,” said Temple. “The notion that the treasurer of a small business or even a relatively wealthy individual should be able to understand and assess the vulnerabilities of a commercial bank is unrealistic.”
As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.
The good…
Top Performers | %Performance |
United States Natural Gas Fund LP
UNG,
| 9.0 |
Invesco KBW Bank ETF
KBWB,
| 4.5 |
iShares U.S. Regional Banks ETF
IAT,
| 4.1 |
abrdn Physical Platinum Shares ETF
PPLT,
| 4.0 |
iShares U.S. Home Construction ETF
ITB,
| 4.0 |
Source: FactSet data through Wednesday, April 19. Start date April 13. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater. |
…and the bad
New ETFs
-
Beacon Capital Management said April 14 that it launched the Beacon Tactical Risk ETF
BTR,
+0.30% . The fund uses “an equal sector allocation across 11 sectors as a first line of defense and a mechanical stop-loss as a secondary defense to limit losses before they become too catastrophic,” said Beacon. “When the stop-loss is triggered, equity positions are sold, and portfolio assets are repositioned into fixed income.” -
YieldMax announced on April 18 the launch of the YieldMax AAPL Option Income Strategy ETF
APLY,
-0.50% , which seeks to produce “monthly income via a synthetic covered call strategy” on Apple Inc. AAPL,-0.58% . The fund, which is actively managed by ZEGA Financial, does not invest directly in Apple.
Weekly ETF reads