Bank exchange-traded funds (ETFs) provide investors with exposure to the banking sector and financial sector economy. Banking services can range from taking deposits, granting loans and facilitating payments to investment management, retirement planning, insurance and brokerage services. In addition to charging fees for these services, banks make a profit by charging higher interest rates on the loans they make than the rates they pay on their customers’ deposits.
Bank ETFs offer investors a way to share in those profits by investing in a basket of banks and other financial services companies.
Key points to remember
- The banking sector has underperformed the broader market over the past year.
- The bank exchange-traded funds (ETFs) with the best one-year total returns are KBWR, KRE and QABA.
- The primary holding of the first and third of these funds is Commerce Bancshares Inc., and the primary holding of the second is Class A shares of Silvergate Capital Corp.
Seven distinct bank ETFs trade in the United States, excluding reverse 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 over the past 12 months, with a total return of -15.2% versus the total return of the S&P 500 -3.7%, as of August 10. , 2022. The best performing banking ETF, based on past year performance, is the Invesco KBW Regional Banking ETF (KBWR). We take a look at the three best bank ETFs below. All figures below are as of August 11, 2022.
- One-year performance: 3.1%
- Expense ratio: 0.35%
- Annual dividend yield: 1.93%
- Three-month average daily volume: 4,930
- Assets under management: $78.5 million
- Creation date: November 1, 2011
- Issuer: Invesco
KBWR is a small cap, mix fund that tracks the KBW Nasdaq Regional Banking Index. The index is composed of US regional banks and savings companies. Due to its narrow focus, KBWR can be used by investors looking for a tactical slant towards a specific niche in the banking industry. Assets are well distributed across the fund’s portfolio, with no security receiving more than a 4% allocation as of August 11, 2022.
KBWR’s major holdings include Commerce Bancshares Inc. (CBSH), a bank holding company serving Missouri; Western Alliance Bancorp (WALL), a bank holding company primarily serving Arizona; and Cullen/Frost Bankers Inc. (CFR), a Texas-based regional bank.
- One-year performance: 1.4%
- Expense ratio: 0.35%
- Annual dividend yield: 1.87%
- Average daily volume over three months: 7,446,863
- Assets under management: $3.3 billion
- Date of creation: June 19, 2006
- Transmitter: State Street
KRE tracks the S&P Regional Banks Select Industry Index, which is a segment of the S&P Total Market Index. The equally weighted provides broad industry-wide exposure, ranging from small-cap to large-cap stocks. Unlike other ETFs that focus on large-cap bank stocks, many of KRE’s small- and mid-cap holdings aren’t affected by the same forces that drive large financial services firms on Wall Street.
The fund’s three main holdings are Class A shares of Silvergate Capital Corp. (AND), a regional bank focused on digital currency; First Citizens BancShares, Inc. Class A Shares (FCNCA), the North Carolina-based holding company of First Citizens Bank; and former national bank (ONB), a regional bank based in Indiana.
- One-year performance: 0.8%
- Expense ratio: 0.60%
- Annual dividend yield: 1.56%
- Three-month average daily volume: 12,923
- Assets under management: $96.5 million
- Creation date: June 29, 2009
- Transmitter: State Street
QABA tracks the Nasdaq OMX ABA Community Bank Index. The index includes all Nasdaq-listed banks and savings banks or their holding companies, with the exception of the 50 most important of them based on assets as well as those with an international specialization or on credit cards. California-based banks receive the greatest representation in the fund’s portfolio, followed by Texas and Missouri.
QABA’s top holdings include Commerce Bancshares, described above; First Financial Bankshares Inc. (BORDER), the Texas-based holding company of First Financial; and Pinnacle Financial Partners Inc. (PNFP), a regional bank serving Tennessee and surrounding areas.
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