While regional bank ETFs continue to tumble, the funds still netted more than $105 million in inflows within the past month, according to FactSet. Flows were largely into the SPDR S&P Regional Banking ETF (KRE), which pulled in $108 million during the same period.
Brown said there are two main drivers to the inflows: value players coming in to buy and short sellers looking to borrow shares, increasing the number of creations and shares outstanding.
“What’s under the hood is very important here,” he said. “The individual stocks are dropping fast, but all of them are not in trouble or have problems on the balance sheet.”
The KRE is down more than 38% this year, notching another 52-week low on Thursday. Its downward trajectory has led at least one investor to forecast continued deposit outflows and a proceeding credit crunch.
But for long-term investors, compensation for owning bank stocks or ETFs comes few and far between. Since it began trading in 2006, the KRE is down 20%, compared with a 230% gain in the S&P 500 during the same time period.
“Banks are essential to the American economy … they’re great dividend payers,” Browne said, giving the example of Apple‘s high-yield savings account that offers a 4.15% APY.
“If you look at the demand for a yield, banks provide a service,” Browne said. “But as far as the composition, it’s risk adjusted. Investors have to make their decisions.”