Bank ETFs That Could Benefit from Increased M&A Activity

With mergers and acquisition activity picking up, regional banks and financial sector ETFs that track smaller firms could benefit from the increased consolidation.

There were 35 deals in the regional banking space last year, the highest number since 1999, and with the 2020 presidential election looming, buyers may be in a hurry to lock in deals in the first half of the year before a potentially new president comes to office, MarketWatch reports.

“Bankers might have a short window to get those deals done,” S&P Global Market Intelligence said in a note. “Regional bank M&A is experiencing something of a sweet spot after regulators lifted a key asset threshold. But that could change after the 2020 elections, leading to some predictions that large deals will be front-loaded in the year ahead.”

Appealing regional banks

Further bolstering the case for merger activity, the most appealing regional banks have exposure to healthy state economies like Texas and Florida, along with other expanding areas of the Southeast.

The banking has also traditionally been an active area for consolidation. In 2000, there were nearly 10,000 banks operating across the U.S. However, that number is now below 6,000.

As a way to target these smaller banks that Wall Street may be eying, investors can turn to focused ETFs like the iShares U.S. Regional Banks ETF (NYSEArca: IAT), SPDR S&P Regional Banking ETF (NYSEArca: KRE), Invesco KBW Regional Bank Portfolio (NYSEArca: KBWR) and SPDR S&P Bank ETF (NYSEArca: KBE), which take on mid- and small-sized regional banks. Potential investors should also note that State Street Global Advisors’ bank-related ETFs follow a more equal-weighted indexing methodology, so their holdings lean more towards smaller-sized companies.

For targeted exposure to the small-sized banking segment, investors can also look to options like the First Trust NASDAQ ABA Community Bank Index Fund (NasdaqGM: QABA) and Invesco S&P SmallCap Financials Portfolio (NYSEArca: PSCF).

For more information on the financials sector, visit our financial category.