The only exchange traded fund to focus on community banks started trading this morning on the NASDAQ. The First Trust Nasdaq ABA Community Bank Fund (QABA) from First Trust Advisors focuses on banks with a local focus, using a strict index criteria to exclude larger regional banks and banks that otherwise derive revenue from outside their home markets (eg credit card servicing).
The fund may appeal to investors looking to profit from the problems at larger banks, as smaller players are in a position to lend and gain market share. The index is down 25% so far this year, beating the 35% ytd decline of the SPDR KBW Regional Banking Fund (KBE).
First Trust specializes in such niche products, and is the 14th largest issuer of ETFS in the US.
“First Trust is pleased to introduce this new ETF that tracks NASDAQ® listed community banks,” said Robert Carey, CFA, and Chief Investment Officer of First Trust.
“There has been little distinction made between the stress-tested megabanks and the nearly 8,000 community banks throughout the country,” he continued. “Because these banks tend to practice more conservative banking strategies and have tended to stay away from subprime lending and exotic financial instruments, they have recently shown higher capital levels and healthier balance sheets as compared to larger financial institutions. Investors who want to take advantage of the financial sector as a market recovery takes hold may find community banks an attractive place to start,” Mr. Carey said.
The First Trust NASDAQ® ABA® Community Bank Index Fund will seek investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of the NASDAQ OMX® ABA® Community Bank IndexSM ABQI, a market capitalization weighted index.
About the NASDAQ OMX® ABA® Community Bank IndexSM
The NASDAQ OMX® ABA® Community Bank IndexSM (the “Index”) is jointly owned and was developed by NASDAQ OMX® and the American Bankers Association. The Index is rebalanced quarterly and reconstituted semi-annually. The Index is calculated and maintained by NASDAQ OMX®. For purposes of the Index, a “community bank” is considered to be all U.S. banks and thrifts or their holding companies listed on NASDAQ®, excluding the 50 largest U.S. banks by asset size. Also excluded are banks that have an international specialization and those banks that have a credit-card specialization, as screened by the American Bankers Association based on the most recent data from the Federal Deposit Insurance Corporation. A security must also have a market capitalization of at least $200 million and a three-month average daily dollar trading volume of at least $500 thousand and must meet certain operating history, solvency, and financial statement requirements. As of June 8, 2009, there were 96 securities that comprised the Index.
About First Trust Advisors L.P.
Based in Wheaton, Illinois, First Trust Advisors L.P., and its affiliate First Trust Portfolios L.P., are privately-held companies which provide a variety of investment services, including asset management, financial advisory services, and municipal and corporate investment banking, with collective assets under management or supervision of over $19 billion as of May 31, 2009 through closed-end funds, unit investment trusts, mutual funds, separate managed accounts and exchange-traded funds.
For more information, please visit www.ftportfolios.com.