M&A activity between banks is strong this year, and with lending growth still sluggish, the consolidation trend is expected to continue.
This could benefit the Invesco S&P SmallCap Financials Portfolio (NASDAQ: PSCF). PSCF owns 163 stocks with an average market capitalization of $ 2.27 billion. Translation: PSCF is an environment rich in targets for potential suitors because its holdings are easily assimilated for potential buyers.
“There have been 149 bank mergers announced so far this year, easily eclipsing the 119 transactions announced across 2020, according to data compiled by Truist. And there are a lot more banks, especially in the Southeast and Texas, that appear to be intentional targets, ”Carleton English reports for Barron.
The PSCF is not a dedicated exchange-traded fund for banks, but it allocates 38% of its weighting to bank stocks, by far its largest weight in the industry. In addition, some PSCF components correspond to the aforementioned geographic parameters.
Beyond geography, PSCF might be an ideal game for further consolidation in the banking industry due to its size. Some small and mid-sized banks may not be looking for large deals that could strain their balance sheets, but targeted deals that add assets and deposits at affordable prices are likely to be appealing.
“The pace of transactions, at least among smaller banks, is expected to continue even in a more difficult mergers climate under the Biden administration. Much of the heightened surveillance is on so-called mega-deals, or those exceeding $ 5 billion, according to a recent report from Deloitte. But when it comes to banking transactions, there are several potential sellers in the order of less than a billion dollars, according to Jennifer H. Demba, analyst at Truist, “according to Jennifer H. Demba, analyst at Truist. that of Barron.
Beyond M&A activity, PSCF has other characteristics that investors might like. For example, the Invesco ETF is once again showing its positive correlation with rising Treasury yields. Ten-year yields have been higher over the past few days, and although this is putting pressure on other sectors of the equity market, the PSCF is up 4.11% over the past week.
On a related note, the PSCF exhibits deep cyclical value characteristics, positioning the fund higher as value stocks come back into fashion. Almost 48% of the components of the PSCF are classified in value stocks against 5.34% bearing the label of growth stocks. The PSCF is up 62.31% from last year.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.