The banking corner of the broader financial segment has been on a roll buoyed by stronger-than-expected earnings, bargain hunting and the steepening of the yield curve. Notably, the yield curve, which had inverted in late August, has now steepened on the back of steady and resilient economy (read: Financial ETFs Gain Despite Mixed Earnings).
Though consumer confidence and factory activity dipped for the fourth consecutive month in November amid fears of trade war consumer spending, which accounts for more than two-thirds of U.S. economic activity, is rising modestly. The job market also strengthened in November with the fastest pace of job additions and unemployment falling to the lowest level since 1969. Also, third-quarter GDP growth was revised upward recently from 1.9% to 2.1%.
Additionally, the housing market is clearly showing signs of a strong recovery on lower mortgage rates and slower home price growth. Stepped-up economic activities will lead to high demand for banking industry. Rising oil prices are also acting as catalysts given that most banks are highly exposed to the energy sector.
Further, trade optimism boosted risk-on sentiments, leading to rise in yields, and thus fueled a rally in banking stocks. 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 banks’ profits. Any progress in trade negotiations would boost global economic growth and benefit big banks (read: 3 Reasons to Bet on Bank ETFs Now).
Given this, bank ETFs are back on track in the final quarter of the year after being under pressure due to a flattening curve early this year. These funds will continue to see smooth trading to end the year should the same trends prevail. These funds have a Zacks ETF Rank #3 (Hold).
Invesco KBW Bank ETF (KBWB - Free Report) – Up 11.5%
This fund provides exposure to 24 companies primarily engaged in U.S. banking activities by tracking the KBW Nasdaq Bank Index. It is concentrated on the top five firms that make up for more than 7% share each. The fund has managed $613.5 million in its asset base and trades in solid volume of 425,000 shares per day on average. Expense ratio comes in at 0.35%.
First Trust Nasdaq Bank ETF (FTXO - Free Report) – Up 8.4%
This fund follows the Nasdaq US Smart Banks Index, which measures performance of U.S. companies within the banking industry. It holds 31 securities in its basket with none accounting for more than 8.4% share. The ETF has AUM of $141.3 million and trades in average daily volume of 54,000 shares. It charges 60 bps in annual fees.
SPDR S&P Regional Banking ETF (KRE - Free Report) – Up 8.1%
This fund, having AUM of $2.1 billion and average trading volume of around 6.1 million shares, offers exposure to regional banks. It follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. Holding 120 securities in its basket, the fund is widely spread out with each security holding less than 3.2% of the assets (read: Follow Morgan Stanley to Trade 2020 Election With ETFs).
iShares U.S. Regional Banks ETF (IAT - Free Report) – Up 8.1%
This ETF offers exposure to 58 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 holding 39.3% of the assets combined. Other firms hold no more than 3.83% share. The fund has amassed $401 million in its asset base and sees a good volume of 168,000 shares a day. It charges 42 bps in annual fees.
SPDR S&P Bank ETF (KBE - Free Report) – Up 7.9%
This fund offers equal weight exposure to 89 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with 74.1% share while thrifts & mortgage finance, diversified banks, other diversified financial services, and asset management & custody banks take the remainder. It has amassed $1.8 billion in its asset base while trading in heavy volume of 1.8 million shares a day on average. The product charges 35 bps in annual fees (read: Why Financials ETFs Are On Fire).
Invesco KBW Regional Banking ETF (KBWR - Free Report) – Up 5.9%
This fund follows the KBW Nasdaq Regional Banking Index, holding 50 stocks in its basket, with each accounting for less than 4% share. It is relatively less popular and less liquid options in the space, with AUM of $68.5 million and average daily volume of 6,000 shares. It charges 35 bps in fees per year from investors.
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