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.
Key Takeaways
- The banking sector underperformed the broader market over the past year.
- The bank exchange-traded funds (ETFs) with the best one-year trailing total returns are KBWR, KRE, and QABA.
- The top holding of the first and third of these funds is Commerce Bancshares Inc., and the top holding of the second is Class A shares of Silvergate Capital Corp.
Seven distinct bank ETFs trade in the United States, 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 underperformed the broader market over the past 12 months, with a total return of -15.2% compared with the S&P 500’s total return of -3.7%, as of Aug. 10, 2022. The best-performing bank ETF, based on performance over the past year, is the Invesco KBW Regional Banking ETF (KBWR). We examine the three best bank ETFs below. All numbers below are as of Aug. 11, 2022.
- Performance Over One Year: 3.1%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.93%
- Three-Month Average Daily Volume: 4,930
- Assets Under Management: $78.5 million
- Inception Date: Nov. 1, 2011
- Issuer: Invesco
KBWR is a small-cap, blended fund which tracks the KBW Nasdaq Regional Banking Index. The index is composed of U.S. regional banking and thrift companies. Due to its narrow focus, KBWR may be used by investors looking for a tactical tilt toward a specific niche of the banking industry. Assets are well-distributed across the fund’s portfolio, with no single holding receiving more than 4% allocation as of Aug. 11, 2022.
The top holdings of KBWR include Commerce Bancshares Inc. (CBSH), a bank holding company serving Missouri; Western Alliance Bancorp (WAL), a bank holding company serving Arizona primarily; and Cullen/Frost Bankers Inc. (CFR), a Texas-based regional bank.
- Performance Over One Year: 1.4%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.87%
- Three-Month Average Daily Volume: 7,446,863
- Assets Under Management: $3.3 billion
- Inception Date: June 19, 2006
- Issuer: State Street
KRE tracks the S&P Regional Banks Select Industry Index, which is a segment of the S&P Total Market Index. The equal-weighted gauge provides broad industrywide exposure ranging from small-cap to large-cap stocks. Unlike other ETFs that focus on large-cap bank stocks, many of KRE’s small-cap and mid-cap holdings aren’t affected by the same forces that drive large Wall Street financial service companies.
The fund’s top three holdings are Class A shares of Silvergate Capital Corp. (SI), a digital currency-focused regional bank; Class A shares of First Citizens BancShares, Inc. (FCNCA), the North Carolina-based holding company of First Citizens Bank; and Old National Bancorp (ONB), a regional bank based in Indiana.
- Performance Over One Year: 0.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.56%
- Three-Month Average Daily Volume: 12,923
- Assets Under Management: $96.5 million
- Inception Date: June 29, 2009
- Issuer: State Street
QABA tracks the Nasdaq OMX ABA Community Bank Index. The index includes all Nasdaq-listed banks and thrifts or their holding companies, except for the 50 largest of these based on assets as well as those with an international or credit-card specialization. Banks based in California receive the largest representation in the fund’s portfolio, followed by Texas and Missouri.
The top holdings of QABA include Commerce Bancshares, described above; First Financial Bankshares Inc. (FFIN), the holding company of Texas-based First Financial; and Pinnacle Financial Partners Inc. (PNFP), a regional bank serving Tennessee and the surrounding area.
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