Bank exchange-traded funds (ETFs) offer investors exposure to the banking and financial sector of the economy. Banking services include taking deposits, making loans, and facilitating payments. Other financial services include investment management, retirement planning, insurance, and brokerage services. Aside from charging fees for these services, banks earn profits by charging higher interest rates on the loans they make than the rates they pay on their customers' deposits. Bank ETFs are a way for investors to share in these profits by investing in a basket of banks and other financial services companies.
- The banking sector dramatically underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are KRE, IAT, and KBE.
- The top holdings of these ETFs are SVB Financial Group, Truist Financial Corp., and Signature Bank, respectively.
There are 6 distinct bank ETFs that trade in the U.S., excluding inverse and leveraged funds as well as those with less than $50 million in assets under management (AUM). The banking sector, as measured by the S&P 500 Banks Industry Index, has drastically underperformed the broader market with a total return of -6.7% over the past 12 months compared to the S&P 500's total return of 19.1%, as of February 1, 2021. The best-performing bank ETF, based on performance over the past year, is the SPDR S&P Regional Banking ETF (KRE). We examine the top 3 best bank ETFs below. All numbers below are as of February 2, 2021.
- Performance over 1-Year: 6.0%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 2.65%
- 3-Month Average Daily Volume: 8,847,152
- Assets Under Management: $2.5 billion
- Inception Date: June 19, 2006
- Issuer: State Street SPDR
KRE tracks the S&P Regional Banks Select Industry Index, which consists of U.S.-listed regional banks. The ETF follows a strategy focused on value stocks and is well diversified within the U.S. regional banking sector with a total of 128 holdings. It is primarily composed of small- and mid-cap companies, and is not heavily concentrated on any single one of them. The fund's top three holdings include SVB Financial Group (SIVB), a holding company that offers a range of banking and financial services; First Republic Bank (FRC), a provider of private banking and wealth management services; and Regions Financial Corp. (RF), a regional bank holding company providing a variety of banking and financial services.
- Performance over 1-Year: 2.6%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 2.83%
- 3-Month Average Daily Volume: 140,467
- Assets Under Management: $326.5 million
- Inception Date: May 5, 2006
- Issuer: iShares
IAT tracks the Dow Jones U.S. Select Regional Banks Index, which gauges the performance of the regional bank sub-sector of the U.S. equity market. The ETF follows a strategy focused on value stocks. It is composed of 54 equities with a particular focus on small- and mid-cap bank stocks, and the fund's top three holdings account for about 35% of total assets. That means that just a few stocks have a significant impact on the fund's total returns. Those top three holdings include Truist Financial Corp. (TFC), PNC Financial Services Group Inc. (PNC), and U.S. Bancorp (USB), all three of which are holding companies that offer a range of banking and financial services.
- Performance over 1-Year: 1.6%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 2.39%
- 3-Month Average Daily Volume: 3,337,140
- Assets Under Management: $3.1 billion
- Inception Date: November 15, 2005
- Issuer: State Street SPDR
KBE tracks the S&P Banks Select Industry Index, an index composed of bank stocks. The ETF holds 90 different stocks with various market capitalizations, and is not heavily concentrated on any single one of them. Similar to both of the other two ETFs above, KBE is focused on value stocks in the U.S. banking and financial sector. It is also heavily weighted toward regional banks, which account for 71% of its total portfolio. Its top three holdings include Signature Bank (SBNY), a provider of commercial banking services; SVB Financial Group; and First Republic Bank.
The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.