New ETF Taps Small-Bank Stocks

The misuse of leverage and complicated debt securities brought the financial-services industry to the brink last year. While the problem roiled big institutions like Bank of America(BAC Quote) and Citigroup(C Quote), community banks avoided the brunt of the crisis.

A new exchange traded fund aims to take advantage of the relative simplicity of small banks, which rely on deposits and local loans. The First Trust Nasdaq ABA Community Banks Index Fund(QABA Quote), introduced last week, says in its investor guide that these companies "tend to be more cautious than their larger counterparts, and take less risk when making lending decisions." These banks also avoided the financial instruments that took down companies like Lehman Brothers Holdings and Washington Mutual.

First Trust, the company running the fund, is betting that people will save more of their incomes and pick local banks over large institutions. Customers will feel safer doing business with a smaller bank. ...