If anything underscores the idea that bigger isn’t always better, it’s the recent results of small-bank stocks in general and of Hennessy Small Cap Financial Fund (HSFNX) in particular. Although the fund gained only 1.9% over the past year, it crushed the average financial sector fund by 13.8 percentage points.
Bank stocks have been flailing because of recession fears, uncertainty about interest rates and concerns that many energy firms may default on their loans. But small banks have held up better than their larger counterparts. Over the past year, the KBW Nasdaq Regional Banking index, which tracks shares of small banks, shed 5.7%, while a KBW index that tracks large banks sagged 14.9%.
Hennessy’s managers, Dave Ellison and Ryan Kelley, invest mainly in savings and loans with market values of less than $3 billion. Small banks earn 70% to 100% of their profits from the “spread”—the difference between the rate at which they borrow and the rate at which they lend. Big banks, Ellison says, rely much more on such things as investment banking and money management. Small banks, he adds, benefit more from higher interest rates, which is why investors flocked to them when it became apparent that the Federal Reserve would raise rates last year.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Hennessy held 38 stocks at last report. Its top three holdings were WSFS Financial, Flushing Financial and Independent Bank.
-
Amazon Surge Sends S&P 500, Nasdaq Higher to Start November: Stock Market TodayAmazon inked a $38 billion cloud deal with OpenAI, which sent the stock to the top of the Dow Jones on Monday.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
October Fed Meeting: Updates and CommentaryThe October Fed meeting is a key economic event, with Wall Street turned into what Fed Chair Powell & Co. did about interest rates.
-
The Delayed September CPI Report is Out. Here's What it Signals for the Fed.The September CPI report showed that inflation remains tame – and all but confirms another rate cut from the Fed.
-
Banks Are Sounding the Alarm About StablecoinsThe Kiplinger Letter The banking industry says stablecoins could have a negative impact on lending.
-
Government Shutdown to Delay Data, Including Key Jobs ReportWhile government shutdowns typically don't impact stock returns, they can delay the release of key economic data – including the monthly jobs report.
-
September Fed Meeting: Updates and CommentaryThe September Fed meeting is a key economic event, with Wall Street keyed into what Fed Chair Powell & Co. will do about interest rates.
-
Hot August CPI Report Doesn't Shift the Rate-Cut Needle: What the Experts SayThe August CPI came in higher than forecast on a monthly basis, but Wall Street still expects a rate cut at next week's Fed meeting.
-
Dismal August Jobs Report Offers Rate-Cut Relief: What the Experts Are SayingThe August jobs report came in much lower than expected, lifting the odds that several rate cuts will come through by year's end.
-
Can President Trump Fire Fed Governor Lisa Cook?Markets hate uncertainty, especially when it comes to monetary policy and interest rates, and questions about the Fed are compounding.
