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.

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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.

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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%.

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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.

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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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