ETF Spotlight: SKRE Wins Bearish Bet on Regional Banks

The levered Tuttle ETF rides high on weak earnings outlook for banks.

Jeff_Benjamin
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Wealth Management Editor
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Reviewed by: etf.com Staff
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Edited by: Ron Day

This week’s unexpected inflation data proved to be the tipping point for investors in regional banks, which took a big hit Wednesday leading into a string of earnings reports for the category.

Market forces being what they are, with every buyer needing a seller, the Tuttle Capital Daily 2X Inverse Regional Banks ETF (SKRE) proved fruitful for some traders looking to ride what will likely be a short-term wave.

The $5.1 million ETF, which was rolled out by Tuttle Capital Management on Jan. 3, is an actively managed fund that invests in swaps to mimic twice the downside daily performance of the SPDR S&P Regional Banking ETF (KRE).

Like any leveraged strategy, SKRE is structured to amplify daily performance and is not designed as a long term, buy-and-hold investment.

But as a short-term play, SKRE was the place to be during the bumpy ride in the middle of the week. The fund gained 10% on Wednesday when the broad markets lost about 1% on the news that inflation was higher than forecast for the third straight month.

At the same time, KRE fell by 5%.

Bearish Bets on Regional Banks

Even without the inflation data, which dampens the outlook for the Federal Reserve’s interest rate cuts this year, regional and super regional banks are heading toward “darkness before the dawn,” according to a new analyst report from CFRA.

Heading into earnings season, CFRA analyst Alexander Yokum wrote that he expects a 2% earnings contraction compared to the previous quarter and a nearly 20% drop from the same quarter last year.

The wet blanket on the category, he explained, is comprised of a combination of higher interest rates reducing loan volume, and a further deterioration of the commercial real estate and multi-family housing markets.

While Yokum is bearish on regional bank earnings for the first quarter, he also sees this as “a likely trough and we expect upcoming results to benefit from rising asset yields and a stabilization in credit quality.”

As a reminder, SKRE is a trading vehicle that offers twice the inverse exposure of the regional banking category, and it can be quite a wild ride.

For example, while it is up more than 15% this year, it has seen big peaks and valleys, including a nearly 10% spike in the first two weeks of January, that followed a 13% drop over the next two weeks, then spiked more than 26% over the next week.

In essence, leveraging on the downside is not for the meek.

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.