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5 Top Performing Banking ETFs in 1H21

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The banking sector has had an impressive run in 2021 so far after a tough 2020. The S&P Banks Select Industry Index has surged 24.1%, year to date, compared with the broader S&P 500 Index’s rally of 15%. Notably, improving prospects for the space amid the rebounding U.S. economy are gaining increased investor attention.

It is a well-known fact that an improving U.S. economy can continue to perk up demand for loans. Also, steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to have got support from the steepening of the yield curve and a modest rise in loan demand.

Moving on, the world’s largest economy is strongly controlling the coronavirus outbreak with accelerated coronavirus vaccine distribution. In fact, more than 60% of adult Americans have already taken the COVID-19 jab, per a CNBC article. Markedly, the Fed’s continued support with easy monetary policies, fiscal stimulus support and reopening of non-essential business are strengthening hopes of rapid recovery from the coronavirus-induced slump.

In another encouraging development, major banks have cleared 2021 stress tests conducted by the Federal Reserve. After clearing this year’s stress tests, major banks plan to reward shareholders with dividend hikes and bigger share-buyback authorizations, effective third-quarter 2021. The move signals that banks are capable of withstanding micro/macro-economic shocks, remain handily above the regulatory capital requirements and return more capital to shareholders. Thus, this development has further boosted investors’ confidence in the banking industry.

Furthermore, the central bank hinted at a sooner-than-expected interest rate hike in the June FOMC meeting. The officials pointed that there might be two rate hikes by 2023-end. The Fed also noted that the U.S. economy will grow at a rate of 7% in 2021, up from the previous projection of 6.5%, in its latest Summary of Economic Projections.

Going by a CNBC article, Fed Chairman Jerome Powell has remained bullish on the economic recovery achieved so far from the pandemic-triggered slump. He also maintained that high inflation levels were temporary and will return to 2% over the long term, per the same article.

Banking ETFs Up More Than 28% YTD

Against this backdrop, let’s take a look at some banking ETFs that have gained more than 28%, so far in the year, and carry a Zacks ETF Rank #2 (Buy):

First Trust Nasdaq Bank ETF (FTXO - Free Report) — up 32.4%

The fund seeks investment results that correspond generally to the price and yield, before fees and expenses, of the Nasdaq US Smart Banks Index. The index is a modified factor-weighted index, designed to provide exposure to U.S. companies within the banking industry. It has an AUM of $240.3 million and charges 0.60% in expense ratio (read:  5 Top-Ranked ETF Winners of 1H With Upside Potential).

Invesco KBW Bank ETF (KBWB - Free Report) — up 30.5%

The fund is based on the KBW Nasdaq Bank Index. The index is a modified-market capitalization-weighted index of companies, primarily engaged in U.S. banking activities. It has an AUM of $2.35 billion and charges 0.35% in expense ratio (read: 5 ETFs That Make Attractive Bets for Q3).

iShares U.S. Regional Banks ETF (IAT - Free Report) — up 29.4%

The fund intends to track the investment results of an index composed of U.S. equities in the regional banks sector. It has an AUM of $716.6 million and charges 0.42% in expense ratio.

Invesco KBW Regional Banking ETF (KBWR - Free Report) — up 28.8%

The fund is based on the KBW Nasdaq Regional Banking Index. It has an AUM of $75.9 million and charges 0.35% in expense ratio.

SPDR S&P Regional Banking ETF (KRE - Free Report) — up 28.6%

The fund seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the S&P Regional Banks Select Industry Index. It has an AUM of $5.09 billion and charges 0.35% in expense ratio (read: 5 Financial ETFs to Buy As Fed Signals Sooner Rate Hike).

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