“Regional bank stocks, historically, have been a decent spot to be. Many regional banks actually hold loans they originate and have a great deal of knowledge about the economy in their area. But risks were lurking here, too. After the mortgage meltdown, all bets were off. It turns out that many large banks were taking too much risk through the use of exotic financial instruments. And, judging from the swelling list of failed banks, too many regional banks didn’t have as much of a handle on their loans as previously believed,” Matt Krantz Reports From USA Today.

Krantz goes on to say, “Does this mean you turn your back on banks? It is tempting, especially after seeing even the HOLDRS Regional Bank exchange-traded fund (RKH) fall about 50% from its peak in early 2007 to now. Keep in mind that’s a diversified basket of bank stocks and it’s still down 45%, even though the rest of the stock market is only down about 25% from its 2007 high.”

“Should you own bank stocks? Certainly, a diversified basket of financial stocks such as the HOLDRS ETF (RKH) have a place in nearly all investors’ portfolios. And clearly, buying them now that they’re “on sale” for half off makes more sense than it did a few years ago. There are just a few things to remember. First, don’t expect the rich dividends that bank stocks have historically paid. Many banks have suspended dividends until they recover more fully. Second, be prepared for ups and downs and keep banks to a reasonable percentage of your portfolio, probably no more than 15% to 20%,” Krantz Reports.

See more to the story: HERE

Right now, the best bang for the buck seems to be in the regional banking sector since they haven’t enjoyed as much gain as the large cap banks. Investors should still be cautious as regional banks still have the threat of the commercial real estate meltdown since they hold a high percentage of loans in the commercial loan market. We have put together some details together on the HOLDRS Regional Bank ETF (RKH) including the holdings of the ETF below:

The investment (RKH) is designed to diversify your investment in the regional banking industry through a single, exchange-listed instrument representing your undivided beneficial ownership of the underlying securities. The trust holds shares of common stock issued by specified companies that, when initially selected, were involved in the regional banking industry. Except when a reconstitution event, distribution of securities by an underlying issuer or other event occurs, the group of companies will not change. There are currently 19 companies included in the Regional Bank HOLDRS.

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