Bank ETFs’ $1B Crisis Windfall

Investors scooped up regional bank funds amid collapsing share prices.

RonDay
|
Managing Editor
|
Reviewed by: Ron Day
,
Edited by: Ron Day

While last month’s regional banking crisis was wreaking havoc across swaths of the exchange-traded fund industry, one corner was enjoying a windfall—the funds that actually invest in those smaller banks. 

Investors dropped $1.2 billion into the SPDR S&P Regional Banking ETF (KRE) last month, Morningstar Direct said in its March report. They did this as the S&P Regional Banks Select Industry Index lost more than 28%. The iShares U.S. Regional Banks ETF (IAT) pulled in $289.1 million during the month. 

“Investors ran toward the banking crisis rather than away from it,” Morningstar analysts Adam Sabban and Ryan Jackson wrote in the report published this week. “Plummeting regional bank stock prices attracted a fresh batch of buy-the-dip investors.” 

That pocket of success aside, the ETF industry, particularly the equity-focused portion, was roughed up last month, mostly because investors fled stocks in search of safe havens like money markets, Morningstar said.  

U.S. equity funds saw $16.5 billion depart in March, the fifth month in a row where more money left than came in. Most of that damage was from actively managed equity funds, which had $20.5 billion in outflows. Passive, or index funds, brought in about $4 billion. 

Equity funds’ loss was money markets’ gain, as $363 billion went into money market funds, which Morningstar said was the third largest haul in almost 30 years. “Fears of contagion from bank failures” pushed investors into cashlike alternatives, the analysts wrote. 

Bonds also did better than equities. Government bond funds and municipal bond funds pulled in billions, while short-term bond funds shed assets for the 16th month in a row. BlackRock Inc.’s iShares taxable bond ETFs brought in $17.2 billion last month, followed by State Street Corp.’s SPDR taxable bond group, with $5 billion, less than a third of the iShares haul. 

BlackRock, State Street and Charles Schwab Corp., three of the five biggest ETF providers, reported in their earnings this week and last that their funds largely struggled in the first quarter due to the banking crisis that took down Silicon Valley Bank, as well as rising interest rates, stubborn inflation and fears of recession. 

 

Contact Ron Day at  [email protected] or follow him on Twitter at @RonDayETF  

Ron Day is Managing Editor at etf.com. He joined the company in October 2022 and previously served as editor and deputy managing editor.

Ron covered business and financial news at Bloomberg News for 20 years, working on the breaking news, technology, commodities, headlines and First Word teams. He was previously senior editor at ESG news outlet Karma Impact and filled the same role at Boundless Impact. He also covered a variety of beats at New Jersey daily papers including the Daily Record in Parsippany, the North Jersey Herald & News and the Asbury Park Press. Ron's freelance work has been published in AARP.com, Investopedia.com and BigThink.com.

Ron is an advocate and fan of literacy. He hopes to one day master his Telecaster, rather than the other way around. His wonderful family includes a 10-lb. malti-poo named Emmy.