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Banks, which were hit hard by the COVID-19 pandemic, have finally heaved a sigh of relief. This is primarily thanks to easing lockdown measures that have instilled confidence among investors.
The latest bouts of data indicate that economic activity has started to pick up and economic damage from the coronavirus pandemic has been less severe than anticipated. Per the latest data, U.S. manufacturing activity rose for the first time since January, indicating that the worst may be over. Jobless claims also fell for the first time during the pandemic era in the week ended May 23, while readings on durable goods beat forecasts. Additionally, stronger-than-expected consumer confidence and homebuilder confidence have led to some optimism. The large Fed and government stimulus have also added to the strength.
Pick up in economic activities will lead to high demand for the banking industry. Additionally, oil price bounced back strongly from its recent trough. This is acting as a catalyst given that most banks are highly exposed to the energy sector (read: Crude Saw Best Month Ever: Are Energy ETFs Ready to Jump?).
Though interest rates remined low across the board, the difference between 5-year and 30-year bonds widened to the biggest differential since May 2017 — according to MarketWatch — a condition that's more favorable for banks that give loans and pay interest on deposits. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will expand net margins and bolster their profits.
Given this, bank ETFs are back on track having gained at least 8% in a week. These funds will continue to see smooth trading should the trends prevail.
This fund provides exposure to companies primarily engaged in U.S. banking activities by tracking the KBW Nasdaq Bank Index. With AUM of $410.6 million, it holds 25 stocks in its basket and trades in solid volume of 480,000 shares per day on average. It charges 35 bps in annual fees. KBWB has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Best-Performing ETFs of Last Week).
This fund, having AUM of $1 billion and average trading volume of around 8.9 million shares, offers exposure to regional banks. It follows the S&P Regional Banks Select Industry Index, charging investors 35 bps a year in fees. KRE holds 121 securities in its basket and has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
iShares U.S. Regional Banks ETF (IAT - Free Report) – Up 9.3%
This ETF offers exposure to 58 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. The fund has amassed $243.1 million in its asset base and sees a good volume of 128,000 shares a day. It charges 42 bps in annual fees and has a Zacks ETF Rank #4 with a High risk outlook.
This fund follows the Nasdaq US Smart Banks Index, which measures the performance of U.S. companies within the banking industry. It holds 31 securities in its basket and charges 60 bps in annual fees. The ETF has AUM of $64.8 million and trades in average daily volume of 73,000 shares. It has a Zacks ETF Rank #4.
This fund offers equal-weight exposure to 90 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with 73.9% share while diversified banks, thrifts & mortgage finance, other diversified financial services, and asset management & custody banks take the remainder. It has amassed $1.3 billion in its asset base while trading in heavy volume of 2.6 million shares a day on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #2 with a High risk outlook (read: Bank ETFs Rise on Merger Speculations).
This fund follows the KBW Nasdaq Regional Banking Index, holding 50 stocks in its basket. It is a relatively less-popular and less-liquid option in the space, with AUM of $32.7 million and average daily volume of 7,000 shares. It charges 35 bps in fees per year from investors.
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Bank ETFs Gain as Economy Reopens
Banks, which were hit hard by the COVID-19 pandemic, have finally heaved a sigh of relief. This is primarily thanks to easing lockdown measures that have instilled confidence among investors.
The latest bouts of data indicate that economic activity has started to pick up and economic damage from the coronavirus pandemic has been less severe than anticipated. Per the latest data, U.S. manufacturing activity rose for the first time since January, indicating that the worst may be over. Jobless claims also fell for the first time during the pandemic era in the week ended May 23, while readings on durable goods beat forecasts. Additionally, stronger-than-expected consumer confidence and homebuilder confidence have led to some optimism. The large Fed and government stimulus have also added to the strength.
Pick up in economic activities will lead to high demand for the banking industry. Additionally, oil price bounced back strongly from its recent trough. This is acting as a catalyst given that most banks are highly exposed to the energy sector (read: Crude Saw Best Month Ever: Are Energy ETFs Ready to Jump?).
Though interest rates remined low across the board, the difference between 5-year and 30-year bonds widened to the biggest differential since May 2017 — according to MarketWatch — a condition that's more favorable for banks that give loans and pay interest on deposits. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will expand net margins and bolster their profits.
Given this, bank ETFs are back on track having gained at least 8% in a week. These funds will continue to see smooth trading should the trends prevail.
Invesco KBW Bank ETF (KBWB - Free Report) – Up 9.5%
This fund provides exposure to companies primarily engaged in U.S. banking activities by tracking the KBW Nasdaq Bank Index. With AUM of $410.6 million, it holds 25 stocks in its basket and trades in solid volume of 480,000 shares per day on average. It charges 35 bps in annual fees. KBWB has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Best-Performing ETFs of Last Week).
SPDR S&P Regional Banking ETF (KRE - Free Report) – Up 9.3%
This fund, having AUM of $1 billion and average trading volume of around 8.9 million shares, offers exposure to regional banks. It follows the S&P Regional Banks Select Industry Index, charging investors 35 bps a year in fees. KRE holds 121 securities in its basket and has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
iShares U.S. Regional Banks ETF (IAT - Free Report) – Up 9.3%
This ETF offers exposure to 58 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. The fund has amassed $243.1 million in its asset base and sees a good volume of 128,000 shares a day. It charges 42 bps in annual fees and has a Zacks ETF Rank #4 with a High risk outlook.
First Trust Nasdaq Bank ETF (FTXO - Free Report) – Up 8.8%
This fund follows the Nasdaq US Smart Banks Index, which measures the performance of U.S. companies within the banking industry. It holds 31 securities in its basket and charges 60 bps in annual fees. The ETF has AUM of $64.8 million and trades in average daily volume of 73,000 shares. It has a Zacks ETF Rank #4.
SPDR S&P Bank ETF (KBE - Free Report) – Up 8.8%
This fund offers equal-weight exposure to 90 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with 73.9% share while diversified banks, thrifts & mortgage finance, other diversified financial services, and asset management & custody banks take the remainder. It has amassed $1.3 billion in its asset base while trading in heavy volume of 2.6 million shares a day on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #2 with a High risk outlook (read: Bank ETFs Rise on Merger Speculations).
Invesco KBW Regional Banking ETF (KBWR - Free Report) – Up 8.1%
This fund follows the KBW Nasdaq Regional Banking Index, holding 50 stocks in its basket. It is a relatively less-popular and less-liquid option in the space, with AUM of $32.7 million and average daily volume of 7,000 shares. It charges 35 bps in fees per year from investors.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>