Bank exchange-traded funds (ETFs) offer investors exposure to the banking and financial sector of the economy. Banking services can range from taking deposits, making loans, and facilitating payments to 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 offer a way for investors to share in these profits by investing in a basket of banks and other financial services companies.
- The banking sector outperformed the broader market over the past year.
- The bank exchange-traded funds (ETFs) with the best one-year trailing total returns are KBWB, IAT, and FTXO.
- The top holdings of these ETFs are Wells Fargo & Co., PNC Financial Services Group, Inc., and Popular Inc., respectively.
Seven distinct bank ETFs trade in the United States, 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 Select Industry Index, has outperformed the broader market over the past 12 months, with a total return of 32.3% compared with the S&P 500’s total return of 18.6%, as of Feb. 3, 2022. The best-performing bank ETF, based on performance over the past year, is the Invesco KBW Bank ETF (KBWB).We examine the three best bank ETFs below. All numbers below are as of Feb. 3, 2022.
- Performance Over One-Year: 35.6%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.79%
- Three-Month Average Daily Volume: 1,896,066
- Assets Under Management: $3.6 billion
- Inception Date: Nov. 1, 2011
- Issuer: Invesco
KBWB tracks the KBW Nasdaq Bank Index, a Nasdaq index targeting companies primarily engaged in U.S. banking activities. The ETF invests at least 90% of its funds in stocks that comprise the index. Companies in the KBWB portfolio include large national U.S. money centers, regional banks, and thrift institutions that are publicly traded in the United States. KBWB tends to have a larger proportion of small-cap companies in its portfolio than other bank ETFs. KBWB’s top 10 holdings account for just over 60% of its invested assets. Its top three holdings are Wells Fargo & Co. (WFC), a major U.S. bank offering diversified financial services; PNC Financial Services Group Inc. (PNC), a super regional bank holding and financial services company; and Bank of America Corp. (BAC), one of the biggest U.S. bank holding companies, offering investment banking and financial services.
- Performance Over One-Year: 33.6%
- Expense Ratio: 0.41%
- Annual Dividend Yield: 1.75%
- Three-Month Average Daily Volume: 218,661
- Assets Under Management: $1.5 billion
- Inception Date: May 1, 2006
- Issuer: BlackRock Financial Management
IAT tracks the Dow Jones U.S. Select Regional Banks Index, an index comprised of U.S. equities in the regional banks sector. The fund focuses on small and mid-size banks. Over 87% of holdings are regional banks stocks, with the bulk of the remainder including diversified banks. The fund is highly concentrated in a small number of names, with the top three holdings representing more than a third of total assets. The top three holdings of IAT include PNC Financial Services Group; Truist Financial Corp. (TFC), a regional bank holding company; and U.S. Bancorp (USB), a super regional bank holding company.
- Performance Over One-Year: 31.9%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.52%
- Three-Month Average Daily Volume: 132,922
- Assets Under Management: $343.2 million
- Inception Date: Sept. 20, 2016
- Issuer: First Trust
FTXO tracks the Nasdaq US Smart Banks Index, which selects the 30 most liquid U.S. bank securities from the Nasdaq US Benchmark Index and ranks them based on volatility, value, and growth factors. The ETF is fairly concentrated in the largest names, with the 10 top holdings accounting for about 61% of invested assets. The top positions in the fund’s portfolio include Popular Inc. (BPOP), which operates as Popular Bank or Banco Popular on the U.S. mainland, and in Puerto Rico and the Virgin Islands; Citizens Financial Group Inc. (CFG), a retail bank holding company; and Regions Financial Corp. (RF), a regional multi-bank holding company.
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