Regional Banks: Small Enough to Succeed
Get better diversified exposure to the banking industry with regional banks.
While U.S. banks have taken a beating over the past few years, they are now better capitalized, as a result of adopting more conservative lending standards. The housing market is also starting to show signs of life, which could strengthen banks’ profitability. Plenty of risks remain. Banks face an unfavorable interest-rate and regulatory environment that may preclude them from returning to their precrash levels of profitability. Yet, regional banks may offer investors the best way to take advantage of attractive valuations in the financial services industry.
Regional banks offer greater diversification benefits than do national banks because their performance is more closely attuned to the health of their local markets. SPDR S&P Regional Banking ETF (KRE) offers an equally weighted portfolio of 76 regional banks that provides pure exposure to this subsector of the financial services industry. KRE is an appropriate tactical satellite holding for investors who have a high tolerance for risk and want to bet on a strong U.S. recovery.
Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.