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Yields are at their multi-year highs as the Fed is widely anticipated to raise the key interest rate by three-quarter points for the third consecutive time to fight elevated inflation when the meeting ends today. Traders are now pricing in an 81% chance of a 75 basis points hike and a 19% likelihood of a 100-basis-point increase (read: ETFs to Watch Ahead of Fed Meeting).
The 10-year yields jumped to their highest level since 2011 as the latest hotter-than-expected inflation data bolstered the bets for a longer-than-expected aggressive rate hike. Inflation remains near multi-decade highs. Meanwhile, the two-year yields rose to almost a 15-year high ahead of the Fed decision.
A rising rate environment is highly beneficial for the financial sector, especially banks. Investors can tap this momentum with SPDR S&P Regional Banking ETF (KRE - Free Report) , SPDR S&P Bank ETF (KBE - Free Report) , Invesco KBW Bank ETF (KBWB - Free Report) , iShares U.S. Regional Banks ETF (IAT - Free Report) and Invesco KBW Regional Banking ETF (KBWR - Free Report) . All these funds have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).
Banks to Win
As banks seek to borrow money at short-term rates and lend at long-term rates, the rise in interest rates will earn more on lending and pay less on deposits, leading to a wider spread. This will expand net margins and increase banks’ profits (read: Financials ETFs: Can the Rebound Continue?).
When the Fed increases interest rates, pressure on margins will gradually alleviate and support banks’ net interest income. Notably, banks earn a major portion of their revenues from interest income. Additionally, the growing economy backed by strong hiring, rising consumer confidence, and increasing wages will continue to support the banking industry.
SPDR S&P Regional Banking ETF provides exposure to the regional banks segment by tracking the S&P Regional Banks Select Industry Index. It holds 144 stocks in its basket, with each accounting for no more than 2.1% of the assets (read: 4 Top-Ranked ETFs Set to Explode as Rate Rises).
SPDR S&P Regional Banking ETF has AUM of $3.1 billion and charges 35 bps in annual fees. It trades in an average daily volume of 6 million shares.
SPDR S&P Bank ETF offers equal-weight exposure to 100 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with 74.9% share, while thrifts & mortgage finance, diversified banks, other diversified financial services and asset management & custody banks take the remainder.
SPDR S&P Bank ETF has amassed $2 billion in its asset base while trading in a heavy volume of 1.6 million shares a day, on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #1.
Invesco KBW Bank ETF provides exposure to the 25 leading national money centers and regional banks or thrifts. It follows the KBW Nasdaq Bank Index. Invesco KBW Bank ETF concentrates on the top five firms that make up more than 8.2% share each.
Invesco KBW Bank ETF has managed $2.1 billion in its asset base and trades in a solid volume of 573,000 shares per day on average. The expense ratio comes in at 0.35%. KBWB has a Zacks ETF Rank #2.
iShares U.S. Regional Banks ETF offers exposure to 38 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. It is largely concentrated on the top three firms with a double-digit allocation each.
iShares U.S. Regional Banks ETF has amassed $835.5 million in its asset base while seeing a good volume of 102,000 shares a day. The product charges 39 bps in annual fees and has a Zacks ETF Rank #1.
Invesco KBW Regional Banking ETF offers exposure to companies primarily engaged in U.S. regional banking activities and follows the KBW Nasdaq Regional Banking Index. Holding 51 stocks in its basket, it is a relatively less-popular and less-liquid option in the space, with AUM of $74.9 million and an average daily volume of 4,000 shares (see: all the Financials ETFs here).
Invesco KBW Regional Banking ETF charges 35 bps in fees per year from investors and has a Zacks ETF Rank #1.
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Bet on Bank ETFs on Fed Rate Hike
Yields are at their multi-year highs as the Fed is widely anticipated to raise the key interest rate by three-quarter points for the third consecutive time to fight elevated inflation when the meeting ends today. Traders are now pricing in an 81% chance of a 75 basis points hike and a 19% likelihood of a 100-basis-point increase (read: ETFs to Watch Ahead of Fed Meeting).
The 10-year yields jumped to their highest level since 2011 as the latest hotter-than-expected inflation data bolstered the bets for a longer-than-expected aggressive rate hike. Inflation remains near multi-decade highs. Meanwhile, the two-year yields rose to almost a 15-year high ahead of the Fed decision.
A rising rate environment is highly beneficial for the financial sector, especially banks. Investors can tap this momentum with SPDR S&P Regional Banking ETF (KRE - Free Report) , SPDR S&P Bank ETF (KBE - Free Report) , Invesco KBW Bank ETF (KBWB - Free Report) , iShares U.S. Regional Banks ETF (IAT - Free Report) and Invesco KBW Regional Banking ETF (KBWR - Free Report) . All these funds have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).
Banks to Win
As banks seek to borrow money at short-term rates and lend at long-term rates, the rise in interest rates will earn more on lending and pay less on deposits, leading to a wider spread. This will expand net margins and increase banks’ profits (read: Financials ETFs: Can the Rebound Continue?).
When the Fed increases interest rates, pressure on margins will gradually alleviate and support banks’ net interest income. Notably, banks earn a major portion of their revenues from interest income. Additionally, the growing economy backed by strong hiring, rising consumer confidence, and increasing wages will continue to support the banking industry.
We have profiled the above-mentioned ETFs below:
SPDR S&P Regional Banking ETF (KRE - Free Report)
SPDR S&P Regional Banking ETF provides exposure to the regional banks segment by tracking the S&P Regional Banks Select Industry Index. It holds 144 stocks in its basket, with each accounting for no more than 2.1% of the assets (read: 4 Top-Ranked ETFs Set to Explode as Rate Rises).
SPDR S&P Regional Banking ETF has AUM of $3.1 billion and charges 35 bps in annual fees. It trades in an average daily volume of 6 million shares.
SPDR S&P Bank ETF (KBE - Free Report)
SPDR S&P Bank ETF offers equal-weight exposure to 100 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with 74.9% share, while thrifts & mortgage finance, diversified banks, other diversified financial services and asset management & custody banks take the remainder.
SPDR S&P Bank ETF has amassed $2 billion in its asset base while trading in a heavy volume of 1.6 million shares a day, on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #1.
Invesco KBW Bank ETF (KBWB - Free Report)
Invesco KBW Bank ETF provides exposure to the 25 leading national money centers and regional banks or thrifts. It follows the KBW Nasdaq Bank Index. Invesco KBW Bank ETF concentrates on the top five firms that make up more than 8.2% share each.
Invesco KBW Bank ETF has managed $2.1 billion in its asset base and trades in a solid volume of 573,000 shares per day on average. The expense ratio comes in at 0.35%. KBWB has a Zacks ETF Rank #2.
iShares U.S. Regional Banks ETF (IAT - Free Report)
iShares U.S. Regional Banks ETF offers exposure to 38 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. It is largely concentrated on the top three firms with a double-digit allocation each.
iShares U.S. Regional Banks ETF has amassed $835.5 million in its asset base while seeing a good volume of 102,000 shares a day. The product charges 39 bps in annual fees and has a Zacks ETF Rank #1.
Invesco KBW Regional Banking ETF (KBWR - Free Report)
Invesco KBW Regional Banking ETF offers exposure to companies primarily engaged in U.S. regional banking activities and follows the KBW Nasdaq Regional Banking Index. Holding 51 stocks in its basket, it is a relatively less-popular and less-liquid option in the space, with AUM of $74.9 million and an average daily volume of 4,000 shares (see: all the Financials ETFs here).
Invesco KBW Regional Banking ETF charges 35 bps in fees per year from investors and has a Zacks ETF Rank #1.