Exchange Traded Funds (ETFs)

How to Invest in This Concentrated Regional Banks Play

iShares US Regional Banks ETF (IAT) is a cap-weighted exchange-traded fund (ETF) focused on the financial sector that is an investment worth considering for those who want exposure to regional bank stocks.

This fund tracks the performance of an index of small- and mid-cap regional banks and excludes mega-caps such as J.P. Morgan and Wells Fargo. Barclays Global Fund Advisors serves as the adviser of the fund, which has amassed total assets of $749.6 million that are invested in more than 60 individual regional banks.

As a result, IAT casts a reasonably wide net in terms of quantity of investments. However, most of the fund’s assets are concentrated in its top holdings. For that reason, the performance of a couple of stocks may have a strong impact on the fund’s overall return.

The fund pays a quarterly distribution, boasting a distribution yield of 1.45%. The ETF charges an expense ratio of 0.44%. This expense ratio is fair compared to other, similar funds.

From the chart below, you can see that IAT started off the year slowly, but has rallied to new highs following the Nov. 8 election. Expectations for the Fed’s interest hikes later this year are beneficial to regional banks and IAT, as well.

IAT has a year-to-date return of 4.76% and a one-year return on 60.70%, handily beating the S&P 500’s 1.90% and 13.18%, respectively. As of the end February 2017, IAT’s price had increased by more than 35% during the last four months.

Unlike many of its peers. IAT is a significantly concentrated fund. Roughly one third of the fund’s assets are invested in its top three holdings. Its top five holdings are U.S. Bancorp (USB), 15.90%; PNC Financial Services Group Inc. (PNC), 11.19%; BB&T Corporation (BBT), 7.07%; SunTrust Banks Inc. (STI), 5.27%; and M&T Bank Corporation (MTB), 4.73%.

If you are looking for a concentrated play on regional banks, consider looking at iShares US Regional Banks ETF (IAT) to add to your portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.