How to Invest in This Concentrated Regional Banks Play

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

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.

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