2. Banking
Industry ETF: SPDR S&P Regional Banking ETF (NYSE:KRE)
YTD Performance of Industry ETF as of October 31: -32.09%
The banking industry has taken a significant hit in 2023, especially after three primary US banks collapsed. The Silicon Valley Bank crisis has been compared to the Washington Mutual in 2008, classifying it as the largest banking collapse since then. SPDR S&P Regional Banking ETF (NYSE:KRE), which represents the broader banking sector in the United States, was down nearly 32% year-to-date as of October 31, making it one of the worst performing industries this year.
SPDR S&P Regional Banking ETF (NYSE:KRE)’s top holding is Zions Bancorporation, National Association (NASDAQ:ZION). The bank provides corporate banking services, commercial banking, commercial real estate banking services, municipal and public finance services, retail banking, wealth management and private client banking services, and capital markets products and services. According to Insider Monkey’s second quarter database, 21 hedge funds were bullish on Zions Bancorporation, National Association (NASDAQ:ZION), down from 33 funds in the prior quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the leading position holder in the company.
FMI made the following comment about Zions Bancorporation, National Association (NASDAQ:ZION) in its Q1 2023 investor letter:
“Our two most impacted holdings during this recent crisis were Zions Bancorporation, National Association (NASDAQ:ZION) and discount broker Charles Schwab. We believe both have sticky deposit bases, best-in-class management teams, conservative balance sheets, and attractive valuations. In both cases, outside of absolute contagion/panic resulting in a run on their deposits (a very low probability tail risk), we view the impact on the businesses as more of an “earnings” event, not a “balance sheet” event. Zions and Schwab got caught up in the contagious fear around SVB’s collapse due to some optical similarities between their balance sheets (namely bonds carried at mark-to-market losses), and Zions being a West Coast regional bank. We believe the similarities largely end there. Zions has a much more diverse deposit base than SVB. We estimate that half of Zions’ deposit base are small and medium-sized business operating deposits, which have historically been quite stable and a competitive advantage. Nearly half of Zions’ deposits are FDIC-insured, and the bank has ample liquidity to meet outflows without selling its securities portfolio. Similarly, Schwab’s retail deposit base is very sticky. Over 80% of their customers’ cash is FDIC-insured, and the cash is spread across approximately 34 million brokerage accounts (average ~$10,000 in bank cash per account). Schwab has more balance sheet liquidity than deposits. In both cases, there appears to be a low risk of correlation among their respective client bases. Although there will likely be some profit headwinds that stem from this crisis, we viewed the large declines in these shares as overly punitive, and thus believe the risk/reward for each is increasingly attractive. We have added to both positions.”