Bank Turmoil Has Boosted Interest In Etf Sector. Here’s Why

Sector ETFs appear to be gaining appeal as a strategy to mitigate the effects of bank upheaval.

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According to Todd Rosenbluth of VettaFi, the tendency applies to ETFs that hold only a few significant corporations in specific areas.

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′′[They'll] be a supplement to a larger S&P 500 strategy," the firm's head of research said to Trade Algo on Monday. "We're finding this year that active management, and specifically actively managed ETFs, have been very popular as a supplement to an existing core strategy."

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According to Rosenbluth, the restricted focus of large-cap sector ETFs can maximize prospective returns.

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′′[In] the same manner that you might do individual stocks of favorite names... now you get the benefits of five or six of these firms to supplement that," he noted.

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When asked if these sector ETFs were looking to reintroduce FAANG equities — which refers to the five popular technology companies Meta, previously Facebook, Alphabet, and Microsoft — Rosenbluth explained that it's difficult to build ETFs with exposure to only big-cap stocks because companies can be classified in different sectors.

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"Right now, you can't get that simply with an ETF [containing] only those five or six equities," he added. "If you truly wanted to bet on only those five or six firms, there's an ETF coming."

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And yet, Astoria Advisors' John Davi noted last week on "ETF Edge" that bank instability might disclose risks hidden in ETFs related to certain industries.

"You have to be aware of your risk," said Davi, the manager of the AXS Astoria Inflation Sensitive ETF.

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Others see the current instability as an opportunity.

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Roundhill Investments, an ETF provider, intends to create three large-cap sector ETFs: Big Tech (BIGT), Big Airlines (BIGA), and Big Defense (BIDD) (BIGD).

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These "BIG ETFs" will join the company's Big Bank ETF (BIGB), which debuted last Tuesday. According to the company's website, its median market valuation is $145.5 billion.

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David Mazza, the company's chief strategy officer, sees comparable prospects for expansion outside of the banking industry.

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"People are buying up some of the larger brands, particularly in the banking industry, since they may benefit from the increased regulation," he added. "The objective here is that [the BIGB] is more than just a one-time experience, but the notion of being a leader and potential sweep down the line."

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Based on Friday's closing, the Roundhill Large Bank ETF has been down about 5% since its inception.

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