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 bank ETFs with the best one-year trailing total return are FTXO, IAT, and KBWB.
The top holdings of these ETFs are New York Community Bancorp Inc., PNC Financial Services Group Inc., and Wells Fargo & Co., respectively.
There are seven 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 outperformed the broader market with a total return of 65.9% over the past 12 months compared to the S&P 500’s total return of 34.0%, as of Aug. 10, 2021. The best-performing bank ETF, based on performance over the past year, is the First Trust Nasdaq Bank ETF (FTXO). We examine the three best bank ETFs below. All numbers are as of Aug. 11, 2021.
Performance over One-Year: 74.9%
Expense Ratio: 0.60%
Annual Dividend Yield: 1.67%
Three-Month Average Daily Volume: 94,935
Assets Under Management: $220.0 million
Inception Date: Sept. 20, 2016
Issuer: First Trust
FTXO tracks the Nasdaq U.S. Smart Banks Index, which selects the 30 most liquid U.S. bank securities from the Nasdaq U.S. Benchmark Index and then 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 just over 60% of invested assets.
The top positions in the fund’s portfolio include New York Community Bancorp Inc. (NYCB), a bank with branches in New York, New Jersey, Ohio, Florida, and Arizona; PNC Financial Services Group Inc. (PNC), a holding company that offers a range of banking and financial services; and JPMorgan Chase & Co. (JPM), an investment bank and financial services holding company.
Performance over One-Year: 69.1%
Expense Ratio: 0.41%
Annual Dividend Yield: 2.03%
Three-Month Average Daily Volume: 302,094
Assets Under Management: $1.2 billion
Inception Date: May 1, 2006
Issuer: BlackRock Financial Management
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 adopts a value-based strategy and focuses on small- and mid-cap bank stocks. Its top three holdings account for nearly 39% of all invested assets, meaning that just a few stocks have a significant impact on the fund’s total returns.
IAT’s top three holdings include PNC Financial Services Group Inc.; U.S. Bancorp (USB), a Minnesota-based holding company offering banking, investment, mortgage, trust, and payment services and products; and Truist Financial Corp. (TFC), a Charlotte-based holding company that also offers a range of banking and financial services.
Performance over One-Year: 68.2%
Expense Ratio: 0.35%
Annual Dividend Yield: 1.87%
Three-Month Average Daily Volume: 1,808,355
Assets Under Management: $2.9 billion
Inception Date: Nov. 1, 2011
KBWB tracks the KBW Nasdaq Bank Index, an index targeting companies primarily engaged in U.S. banking activities. Companies in the KBWB portfolio include large national U.S. money centers, regional banks, and thrift institutions that are publicly traded in the U.S. The unique focus on thrift institutions means that 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 over 60% of its invested assets.Its top three holdings are Wells Fargo & Co. (WFC), a multinational financial services company; Bank of America Corp. (BAC), an investment bank and financial services holding company; and JPMorgan Chase & Co.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.