This post is part of a regular series written by ETF Trends editor Tom Lydon, special for CNBC.com.
Financials seem to be a four-letter word these days, but there’s one area of the sector that generally has fared better than the “too big to fail” segment: regional banks. (See below for Buy recommendation.)
Much of the financial crisis has been exacerbated by fearful banks suffering massive writedowns as a result of sophisticated yet toxic loans. But regional banks have by and large managed to dodge the worst of it. How?
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While big banks made even bigger bad bets and lowered their lending standards, a significant portion of smaller banks did no such thing. On the whole, they managed to stay largely out of the subprime markets and kept their credit intact.
This doesn’t mean that the regional banks aren’t feeling the effects of the current financial situation. Some banks have high concentrations in commercial real estate, a particularly hard-hit sector. And some may be feeling the ripple effect of the credit crunch.
Regional banks have a huge advantage, though; they know their customers better than the big boys know theirs. It’s hard to conceal that your company is having trouble if you see your banker at the Little League field and church on Sunday. The irony here is these smaller banks were getting gobbled up by the big boys just a few years ago. Today it looks like the big banks have found their way into the tar pits with the rest of the mastodons.
An easy way to grab this sector: The SPDR KBW Regional Banking ETF. It was up 22.5 percent last week alone.
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Tom Lydon is the editor of ETF Trends and author of iMoney: Profitable ETF Strategies for Every Investor.