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 underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are KRE, IAT, and FTXO.
- The top holdings of these ETFs are Western Alliance Bancorp, U.S. Bancorp, and class A shares of First Citizens BancShares Inc., respectively.
There are 7 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 underperformed the broader market with a total return of 33% over the past 12 months compared to the S&P 500's total return of 43.6%, as of May 3, 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 3 best bank ETFs below. All numbers below are as of May 4, 2021.
- Performance over 1-Year: 95.5%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 2.11%
- 3-Month Average Daily Volume: 8,479,626
- Assets Under Management: $5.2 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 136 holdings. It is primarily composed of small- and mid-cap companies, and is not heavily concentrated in any single stock. The fund's top three holdings include Western Alliance Bancorp (WAL), a holding company providing banking services through its subsidiary Western Alliance Bancorp; Comerica Inc. (CMA) a regional bank providing financial services to states primarily in the Midwest as well as Mexico and Canada; and First Republic Bank (FRC), a provider of private banking and wealth management services.
- Performance over 1-Year: 92.1%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 2.04%
- 3-Month Average Daily Volume: 328,081
- Assets Under Management: $724.7 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 is composed of 56 equities with a focus on small- and mid-cap bank stocks. The fund's top three holdings account for nearly 36% of the ETF's assets. That means that just a few stocks have a significant impact on the fund's total returns. Those top three holdings include U.S. Bancorp (USB), Truist Financial Corp. (TFC), and PNC Financial Services Group Inc. (PNC), all three of which are holding companies that offer a range of banking and financial services.
- Performance over 1-Year: 91.6%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.86%
- 3-Month Average Daily Volume: 114,523
- Assets Under Management: $246.7 million
- Inception Date: Sept. 21, 2016
- Issuer: First Trust
FTXO tracks the Nasdaq US Smart Banks Index, a modified factor weighted index comprised of the 31 most liquid eligible bank securities from the index, ranked based on volatility, value, and growth factors. FTXO is fairly concentrated in the largest names, with the 10 top holdings accounting for just under 60% of invested assets. The top positions in the fund's portfolio including class A shares of First Citizens BancShares Inc. (FCNCA), a holding company providing banking services; Popular Inc. (BPOP), a commercial banking company providing services in part of the U.S., Puerto Rico, and the region; and PNC Financial Services Group.
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