Bank exchange-traded funds (ETFs) provide investors with exposure to the banking and financial sectors of the economy. Banking services can range from taking deposits, issuing loans and facilitating payments to investment management, retirement planning, insurance and brokerage services. In addition to charging fees for these services, banks also make profits by charging loans with interest rates higher than customer deposit rates.
Bank ETFs provide investors with a way to share these profits by investing in a basket of banks and other financial services companies.
- In the past year, the performance of the banking industry has clearly outperformed the market.
- The bank exchange-traded funds (ETF) with the best one-year total return are FTXO, KBWB and KRE.
- The largest holdings of these ETFs are the Class A shares of Popular Inc., Bank of America and Silvergate Capital Corp. respectively.
Seven different bank ETFs are traded in the United States, excluding reverse and leveraged funds and funds with assets under management (AUM) of less than US$50 million. Measured by the S&P 500 Banking Industry Index, the banking industry has outperformed the market, with a total return of 54.1% in the past 12 months, while the S&P 500 has a total return of 31.5% as of November 16, 2021.
Based on the performance of the past year, the best performing bank ETF is First Trust Nasdaq Bank ETF (FTXO). We have checked the three best bank ETFs below. All figures below are as of November 12, 2021.
- Performance over one year: 70.1%
- Expense rate: 0.60%
- Annual dividend yield: 1.52%
- Three-month average daily volume: 86,903
- Assets under management: $291 million
- Date of Establishment: September 20, 2016
- Issuer: First Trust
FTXO tracks the Nasdaq U.S. Smart Banking Index, which selects 30 of the most liquid U.S. bank securities from the Nasdaq U.S. benchmark index and ranks them based on volatility, value, and growth factors. ETFs are quite concentrated in big names, with the top 10 holdings accounting for about 58% of investment assets.
The top positions in the fund’s portfolio include Popular Inc. (BPOP), which operates as Popular Bank or Banco Popular in the continental United States, Puerto Rico, and the Virgin Islands; PNC Financial Services Group Inc. (PNC), which offers a range of banks And financial services super regional bank; JP Morgan Chase (JPM) is the largest bank holding company in the United States, providing investment banking and financial services.
- Performance over one year: 67.1%
- Expense rate: 0.35%
- Annual dividend yield: 1.79%
- Three-month average daily volume: 1,438,861
- Assets under management: US$3.6 billion
- Date of establishment: November 1, 2011
- Issuer: Invesco
KBWB tracks the KBW Nasdaq Bank Index, which is a Nasdaq index for companies primarily engaged in U.S. banking business. ETF invests in stocks that account for at least 90% of the index. The companies in the KBWB portfolio include large U.S. national currency centers, regional banks, and savings institutions that are publicly traded in the United States. Compared with other bank ETFs, KBWB’s portfolio tends to have a larger proportion of small-cap companies.
KBWB’s top 10 holdings account for less than 60% of its investment assets. Its top three holding companies are one of the largest bank holding companies in the United States, Bank of America (BAC), which provides investment banking and financial services; Wells Fargo & Co. (WFC), a major U.S. bank that provides diversified financial services; and US Bancorp (USB), a super regional bank holding company.
- Performance over one year: 66.6%
- Expense rate: 0.35%
- Annual dividend yield: 1.87%
- Three-month average daily volume: 8,300,032
- Assets under management: US$5.5 billion
- Date of Establishment: June 19, 2006
- Issuer: State Street
KRE tracks the S&P Regional Bank Select Industry Index, which represents the regional bank portion of the S&P Total Market Index. The fund’s target index is composed of regional bank stocks, ranging in size from small-cap to large-cap. Due to its focus on regional banks, KRE contains a higher proportion of small-cap and mid-cap bank stocks than many other bank ETFs. The fund is very diversified, with the top 10 holdings accounting for approximately 22% of investment assets.
KRE’s largest holdings include Class A shares of Silvergate Capital Corp. (SI), a bank that provides financial services to companies in the financial technology and cryptocurrency industries; SVB Financial Group (SIVB), a private bank and wealth management service provider Business; and Western Union Bank (WAL), a regional bank.
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