For investors looking for growth in the banking industry, three bank ETFs that are outperforming the market offer exposure without tying their investment to a single company.
They are the Invesco KBW Regional Banking ETF, First Trust NASDAQ ABA Community Bank Index Fund, and SPDR S&P Regional Banking ETF, which have fallen as little as 5% in the past year while the S&P 500 Banks Industry Index has dropped 21% and the S&P 500 Index has declined 18% as of Nov. 4.
- The three top bank ETFs outperformed the market over the past year.
- The bank exchange-traded funds (ETFs) with the best one-year trailing total returns are the Invesco KBW Regional Banking ETF, First Trust NASDAQ ABA Community Bank Index Fund, and SPDR S&P Regional Banking ETF.
- The top holdings of these funds are Cullen/Frost Bankers Inc., Commerce Bancshares Inc., and Huntington Bancshares Inc., respectively.
The banking industry this year has been dragged down this year by the plunging market, slower investment banking business, and a weaker home loan market even as higher Federal Reserve rates have enabled them to charge more for loans. In this environment, ETFs focused on regional and community banks have thrived.
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). We examine the three best bank ETFs below. All numbers below are as of Nov. 7.
Invesco KBW Regional Banking ETF (KBWR)
- Performance Over One Year: -4.5%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.93%
- Three-Month Average Daily Volume: 6,785
- Assets Under Management: $83.1 million
- Inception Date: Nov. 1, 2011
- Issuer: Invesco
KBWR is a small-cap, blended that tracks the KBW Nasdaq Regional Banking Index. The index is composed of U.S. regional banking and thrift companies. Due to its narrow focus, KBWR may be used by investors seeking a short-term position in a niche of the banking industry. Assets are well-distributed across the fund's portfolio, with no single holding receiving more than 4.5% allocation as of Nov. 7.
The top holdings of KBWR include Cullen/Frost Bankers Inc. (CFR), a Texas bank; Webster Financial Corp. (WBS), which serves the northeast U.S.; and Commerce Bancshares Inc. (CBSH), a bank holding company in Missouri.
First Trust NASDAQ ABA Community Bank Index Fund (QABA)
- Performance Over One Year: -6.0%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.56%
- Three-Month Average Daily Volume: 34,868
- Assets Under Management: $148.9 million
- Inception Date: June 29, 2009
- Issuer: First Trust
QABA tracks the Nasdaq OMX ABA Community Bank Index. The index includes all Nasdaq-listed banks and thrifts or their holding companies, except for the 50 largest of these based on assets as well as those with an international or credit-card specialization. Banks based in California receive the largest representation in the fund's portfolio, followed by Texas and Missouri.
The top holdings of QABA include Commerce Bancshares, described above; SouthState Corp. (SSB), the holding company of SouthState Bank serving Florida; and Pinnacle Financial Partners Inc. (PNFP), a regional bank serving Tennessee and the surrounding region.
SPDR S&P Regional Banking ETF (KRE)
- Performance Over One Year: -12.6%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.87%
- Three-Month Average Daily Volume: 7,002,197
- Assets Under Management: $3.4 billion
- Inception Date: June 19, 2006
- Issuer: State Street
KRE tracks the S&P Regional Banks Select Industry Index, which is a segment of the S&P Total Market Index. The equal-weighted gauge provides industrywide exposure ranging from small-cap to large-cap stocks. Unlike other ETFs that focus on large-cap bank stocks, many of KRE's small-cap and mid-cap holdings aren't affected by the same forces that drive the biggest financial service companies.
The fund's top three holdings are Huntington Bancshares Inc. (HBAN), the holding of Ohio-based Huntington National Bank; First Horizon Corp. (FHN), a regional bank serving the southeastern U.S.; and Webster Financial, described above.
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