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OK, 2011 was a terrible year for financial stocks. But it’s over.The only thing you can do now is think smarter about the characteristics of a good financial stock in 2012. According to the Wall Street Journal, that means looking at banks that don’t have to worry as much about stress tests, capital requirements, and Dodd-Frank — small banks with assets below $10 billion.
“For 70 years, regulators viewed large, diversified banks as safer and thus able to make do with lower reserve levels,” says Frederick Cannon, director of research at Keefe, Bruyette, and Woods. “Now they’re taking the opposite view.”
Smaller banks may have fewer assets, but they’ll have more liberty to turn those assets into bigger profits in the years to come. So here’s what you should be looking for:
- Keefe Bruyette and Woods like Bank of Marin Bancorp, based in California, Bryn Mawr Bank in Pennsylvania, and CVB Financial out of Ontario because they’ve all been seeing high returns on their assets.
- If you want a bank with a lot of cash, look at Washington’s Columbia Banking System, Pennsylvania’s F.N.B., and People’s United Financial in Connecticut.
- If you’re a mutual fund investor look at the the Powershares KBW Regional Banking Portfolio, it’s an ETF made up of smaller banks. It costs $35 a year for every $10,000 invested and has a dividend yield of about 2%.
- You may also want to consider actively managed mutual fund, FBR Small Cap Financial Investor. It’s returned 6% a year for the past decade. It costs $151 per $10,000 invested.
- Another ETF to look at is the SPDR S&P Regional Banking ETF. It’s made up of companies with an average stock market value of $2.7 billion. It costs $35 a year for every $10,000 invested and has a dividend yield of about 1.9%.