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.
Sign up for Kiplinger’s Free E-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.
-
You Don’t Want to Retire in Portugal: Here Are Three Tax Reasons WhyRetirement Taxes With the NHR benefit retiring and pension taxes increasing, you might rethink your retirement plans in Portugal.
-
Home Depot's Winning Ways Fueled Its 100,000% ReturnHome Depot's wide moat leaves little room for competition – and shareholders have profited as a result.
-
CPI Report Puts the Kibosh on Rate Cuts: What the Experts Are Saying About InflationCPI Consumer price inflation reared its ugly head to start the year, dashing hopes for the Fed to lower borrowing costs anytime soon.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
CPI Report Keeps the Fed on Track: What the Experts Are Saying About Inflation
CPI Disinflation in key areas of consumer prices should help the Federal Reserve stick to its policy path of gradual cuts to interest rates.
-
Blowout December Jobs Report Puts Rate Cuts on Ice: What the Experts Are SayingJobs Report The strongest surge in hiring since March keeps the Fed on hold for now.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
CPI Report Casts Doubt on Rate Cuts in 2025: What the Experts Are Saying About Inflation
CPI November Consumer Price Index data sealed the deal for a December rate cut, but the outlook for next year is less certain.
-
Rebound in Jobs Growth Keeps Fed on Track: What the Experts Are Saying
Jobs Report No nasty surprises in the November payrolls data leaves a quarter-point cut in play.
-
October CPI Report Hits the Mark: What the Experts Are Saying About Inflation
CPI While the current pace of rising prices appears to have leveled off, the expected path of rate cuts has become less certain.
