Dec. 1, 2019, 8:24 a.m. EST

How To Make A Big Bet On Big Banks


Traders looking for some excitement with exchange traded products offering exposure to bank stocks have plenty of options. One of the niftier ideas to consider is the MicroSectors U.S. Big Banks Index 3X Leveraged ETN (nysearca:BNKU).

BNKU, a tripled-leveraged exchange traded note, debuted in April and is linked to the Solactive MicroSectors U.S. Big Banks Index.

BNKU's underlying index employs a strategy that's mostly unique in the crowded field of bank ETFs: it only holds the 10 largest domestic banks, weighting each stock at 10%.

Holdings in BNKU's benchmark include Bank of America (NYS:BAC) , BB&T , Citigroup (NYS:C) , JPMorgan Chase (NYS:JPM) and Goldman Sachs (NYS:GS) .

Diversified big bank stocks have been on a roll since the start of earnings season,” MicroSectors said in a recent note. “Following EPS beats, Bank of America, JPMorgan Chase, Morgan Stanley, and US Bancorp are up at least +10.0% each. The Solactive Big Banks Index (biggest 10 U.S. Banks by market cap, equally weighted) is up +18.2% since October 8th.”

Over that period, BNKU's index is topping broader, traditional financial services ETFs as well as those funds that are dedicated to bank equities and regional banks. Consolidation among big name brokerage houses has been catalyst for the financial services, underscoring the utility of BNKU because names like Charles Schwab (NYS:SCHW) usually aren't marquee components in standard bank ETFs.

“Recent bank headlines have been led by Charles Schwab’s $26 billion deal for competitor TD Ameritrade (NAS:AMTD) . The news sent other brokerage firms into a frenzy as E-Trade Financial Group (NAS:ETFC) and Interactive Brokers Corp (NAS:IBKR) fell following the announcement,” notes MicroSectors.

Over the near term, BNKU could be worth a look for active traders because the Federal Reserve is unlikely to lower interest rates again before the end of 2019 and fourth-quarter earnings estimates are mostly solid.

“The Federal Reserve plans to cool its easing policy following three 25bp interest rate cuts in 2019. Most FOMC members believe the cuts meet moderate economic growth, robust labor market and current 2.0% inflation target objectives,” MicroSectors said. “As it stands, the FED will likely hold the 1.75-2.00% overnight lending rate range, unless incoming economic data changes. The current probability of a December meeting rate hike (4.1%) is higher than the probability of a rate cut (0.0%).”

Related Links:

3 ETF Winners For Black Friday

Risks Linger For Healthcare ETFs

Photo credit: Mike Mozart, Flickr

© 2019 Benzinga does not provide investment advice. All rights reserved.

Link to MarketWatch's Slice.