ProShares broke some new ground yesterday (4/22/10) with the first leveraged and inverse ETFs to cover the regional banking sub-sector. This group has been active recently, thanks in part to speculation that its members will become takeover targets for the multinational mega-banks, but would probably be doing well even without merger rumors.

The two new ETFs are:

  • ProShares Ultra KBW Regional Banking (KRU)
  • ProShares Short KBW Regional Banking (KRS)

Both ETFs follow the KBW Regional Banking Index, a well-known industry benchmark. KRU will try to deliver 200% of the daily index performance, while KRS will aim for 100% of the inverse daily index performance. Note that the long ETF is leveraged and the inverse version is not. The underlying index is already accessible in an unleveraged long ETF, SPDR KBW Regional Banking (KRE). KBW has a series of indexes covering various financial services niches, such as insurance, capital markets, and mortgage finance.

Top holdings in the Regional Banking index include:

  • Webster Financial (WBS)
  • First Midwest Bancorp (FMBI)
  • CVB Financial (CVBF)
  • Whitney Holdings (WTNY)
  • Cathay General Bancorp (CATY)
  • Associated Bancorp (ASBC)
  • Fulton Financial (FULT)
  • Synovus Financial Corp (SNV)
  • MB Financial (MBFI)
  • FNB Corporation (FNB)

The index consists of 50 mid-cap banking stocks, equally weighted and float adjusted. It is reviewed quarterly and rebalanced as necessary to keep each holding at or below a 3% allocation.

KRU and KRS should be useful trading tools for anyone who follows the financial services sector. As with all leveraged and inverse ETFs, they are subject to significant drift away from the benchmark when held for periods longer than one day.

  • ProShares news release
  • KRU overview page
  • KRS overview page
  • KBW Regional Banking Index