Opinions
Phil Taller
SPDR S&P Regional Banking ETF
KRE-N
DON'T BUY
Jun 28, 2013
Stock price when the opinion was issued
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Financials have been slower to recover, only gaining strength in September-October. Still have a long way to go. If you believe we had a generational low in long-term interest rates, and we're just entering a reflationary cycle, insurance companies benefit as assets go up in price. Higher rates are really good. Also interesting are KIE and KBE. Most interesting is IAI, making new highs. As a group, financials have underperformed since 2007, so they should now have a tailwind in this environment.
He's not surprised by the outflows from tech, which has been defensive this year. If Delta continues to slow and accomodative policy continues, investors will look at other places in the market for returns. KRE was below market weight. He trimmed his holding in June and jusT added to it. Cyclicals are up; financials have been flat this month, though up this past week. He likes regional banks; there's a return to loan demand.
Speaking of which, KRE on the NYSE holds a basket of regional U.S. banks, including Comerica, SVB Financial and East West Bancorp. Some of the names in this basket will ring a bell for the wrong reasons. This ETF, as of the end of March, has lost 24%. If you think that the editors of Stockchase have gone temporarily insane, consider that sooner or later the regionals will bottom. Also factor that KRE charges only a 0.35% MER, pays a not-bad 2.39% dividend yield, and its beta is only 1.1, surprising considering all that has happened.
Regional banks are unfairly discounted. There has been a big sell-off in a sector that people will be re-evaluating and maybe consider buying. There is lots of consolidation at the $43 to $44 level. It has a solid base at $40 and should trade up to $50 depending on interest rates declining.
He would prefer to be a little more selective when buying a bunch of US regional banks. Would want to know what market segment is being targeted by a bank and the geographic area they are in. There are parts of the US that are doing better than others. An ETF gives you exposure to everything. (See Top Picks.)