Exchange-traded funds, or ETFs, offer a unique opportunity to pick up tens or hundreds of stocks with a single investment. Funds focusing on the Financials sector invest in companies dealing with banking, insurance, and other financial services. This article reveals our top seven bank ETFs in this exciting market.
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The Best Bank ETFs to Buy in 2022
The Invesco KBW Bank ETF is a pure-play investment comprising 24 bank stocks primarily from the United States. It tracks the KBW NASDAQ Bank Index, following the Index almost line by line. The fund’s portfolio holds just over $1.471 billion in total assets.
Top holdings include Citigroup Inc (NYSE: C) at 10.16%, JP Morgan Chase & Co (NYSE: JPM) at 10.12%, and Wells Fargo & Co (NYSE: WFC) at 8.70%. Each institution represents large money center banks with a solid national presence.
The fund has grown alongside the Index, seeing 12.49% gains since its inception in 2011. A 3.65% dividend yield helps further with overall investment performance. Prices have been down since January, but the bank ETF has yet to turn in a negative year.
KBWB’s expense ratio is 0.35%, a bit below the industry standard.
iShares U.S. Financial Services ETF has a total of 104 holdings representing over $1.27 billion in net assets. The fund incorporates a mix of credit card companies, banks, software, and a tiny bit of insurance stocks.
The broad financial sector ETF started back in 2000, with shares experiencing 169% gains. This return holds even after a recent drop in prices in 2023. It follows the Dow Jones U.S. Financial Services Index, which is experiencing a similar decline.
Fund holdings start with JP Morgan Chase & Co (NYSE: JPM) at 11.92%, a national banking institution. Other top assets include Visa Inc (NYSE: V) at 10.80% and Mastercard Inc (NYSE: M.A.) at 9.04%, both major credit card providers.
IYG has been faithful with its dividend yield, paying out 1.78% at current prices. To invest, traders will have to meet 0.39% expense ratio fees.
As the name implies, the SPDR S&P Regional Banking ETF holds companies involved in localized financial services. These regional banks represent a pure-play of 143 holdings with reasonable equal weight distribution. Total assets under management (AUM) surpass the $2.17 billion mark.
East West Bancorp (NASDAQ: EWBC), 2.14% is a California banks. Regions Financial Corporation (NYSE: RF) at 2.11% is a southern bank. PNC Financials Services Group (NYSE: PNC) at 2.07% operates across much of the nations. It is about 170 years old. M&T Bank Corporation (NYSE: MTB), at 2.06% weight, has some 800 branches from Connecticut to Virginia.
The regional banks ETF has followed the S&P Regional Banks Select Industry Index since its inception in 2006. It has grown 0.58% since that time, even with a difficult 2023 for banks.
An expense ratio of 0.35% is well within the appropriate range for investment. To help offset this cost, the regional banks ETF pays out a 3.41% dividend yield.
Vanguard Financials ETF hits a wide range of assets from bank stocks to asset management and insurance. The broadly diversified fund helps investors gain exposure to a diversified portfolio of shares without making multiple investments.
The broad financial ETF began in 2004, tracking the Spliced US IMI Financials 25/50 Index from 2010. It holds up well against the benchmark, seeing 12.35% gains in the last three years, before the recent downturn in banks.
VFH holds 376 individual financial stocks, with its ten top holdings making up roughly 40% of the total asset pool. These holdings equal no less than $9.7 billion in assets.
JP Morgan Chase & Co (NYSE: JPM)is the largest holding at 8.91%. Warren Buffett’s Berkshire Hathaway Inc. Class B (NYSE: BRK.B) takes the second spot with 8.42% of funds. The company owns many subsidiaries ranging from insurance to transportation and energy. Other significant assets include Bank of America Corp (NYSE: BAC) with 5.25% and JWells Fargo & Co (NYSE: WFC) at 3.77% and, both big names in the national banking sector.
The ETF’s expense ratio is a surprisingly low 0.10% for such a lucrative list of financial sector stocks. Moreover, its current dividend yield pays out 2.20%.
The Financial Select Sector SPDR Fund invests in banks, capital markets, insurance, and diversified financial services. Even with only 67 holdings, the ETF’s assets under management eclipse the $29.37 billion mark.
XTF has been around since 1998, using the Financial Select Sector Index as a benchmark for investment management. The ETF matches its Index perfectly when it comes to industry allocation. Three-year annualized gains for both the ETF and Index are over 12%.
The ETF’s significant holdings feature Berkshire Hathaway Inc. Class B (NYSE: BRK.B), representing an incredible 15.58% of total assets. In addition, the financial sector giant includes GEICO insurance among its list of subsidiaries. National banks JP Morgan Chase & Co (NYSE: JPM) at11.18% and Bank of America Corp (NYSE: BAC) at 5.68% round out the top three.
A surprisingly low 0.10% expense ratio sits favorably next to a 2.16% dividend yield. For all the big names this ETF holds, it currently trades for only around $30 per share.
The Invesco S&P 500 Equal Weight Financials ETF has a somewhat uneven split of stocks from insurance, capital markets, and the banking sector. Sixty-seven actual investments fit into the ETF, with assets under management surpassing $343 million.
Assets are spread more or less evenly across each holding, with top honors going to Dividend Contender, MarketAxess Holdings (NASDAQ: MKTX) at 2.24%. The firm operates a bond electronic trading platform. Insurance company, Arch Capital Group (NASDAQ: ACGL) at 1.89% is second. Next, MSCI (NYSE: MSCI), the investment decision tool and index provider is third at 1.88%. Auto and property insurance provider Progressive (NYSE: PGR) represents 1.77% of assets.
Unsurprisingly, Invesco’s ETF tracks closely with S&P 500 Equal Weight Financials Index. The two have seen almost identical growth, over 15% in the last three years.
As with most financial ETFs, RYF pays out a quarterly dividend. Current payouts hover around the 2.25% mark. In addition, the 0.40% expense ratio is close to industry standards.
When thinking big picture, the iShares Global Financials ETF is a great place to start. Although most assets fall into the banking bucket, the ETF includes some insurance stocks. The fund has 198 holdings in its portfolio, following the S&P Global 1200 Financials Sector Index. The expenses ratio is 0.40%
Assets are heavily weighted at the top, with Berkshire Hathaway Inc. Class B (NYSE: BRK.B) and its subsidiaries representing 7.70% of the pie. Additionally, national banks JP Morgan Chase & Co (NYSE: JPM) and Bank of America Corp (NYSE: BAC) are significantly lower, at 5.53% and 2.81%, respectively.
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Investors must consider the fund’s scope when choosing from various banking sector ETFs. For example, some financial ETFs scale to the global level, while others stick to regional banks.
Global financial sector ETFs contain securities representing banking establishments from around the world. These funds factor heavily into the global economy, offering a diverse selection that can weather most economic downturns.
International banks tend to ebb and flow with time, creating a cyclical pattern in the market. But, overall, global financial sector ETFs can continue growing through highs and lows.
The Invesco KBW Bank ETF and iShares Global Financials ETF fit well into this category.
A handful of exchange-traded funds work nationally, holding stocks whose businesses span coast to coast. These ETFs track domestic indexes and build upon the pros and cons of the American economy.
Vanguard Financials ETF, Financial Select Sector SPDR Fund, Invesco S&P 500 Equal Weight Financials ETF, and iShares U.S. Financial Services ETF are popular choices from this level.
Regional and Community Bank ETFs focus on smaller banks around the country. These financial ETFs speak to those preferring a smaller scale, but not necessarily a smaller number of holdings.
The SPDR S&P Regional Banking fund is the best-performing ETF in this category.
The banking sector is typically suitable for long-term investors who can leave money in a fund for extended periods. This point lines up perfectly with ETFs, which by nature should grow at a slow but steady rate.
Banks are generally susceptible to the effects of the recession and consumer spending. This is because financial institutions don’t generate as much income if money isn’t flowing. ETFs, help to iron out this kink, as some contain stocks from multinational banks and a diverse number. Some banks also periodically fail because of balance sheet deficits or other reasons.
Since the sub-prime mortgage crisis, banks are getting better at recession-proofing with improved balance sheets. Additionally, many are taking to online strategies for individuals looking to get into investments. This strategy also combats the rise of fintech companies attempting to take over traditional banking markets and clients.
Financial ETFs nearly always pay out dividends to shareholders, amounting to passive income once a quarter. In addition, most boast low expense ratios, making these funds very approachable investment strategies.
Bank ETFs can be a great addition to any investor’s long-term plan but they have risks. Of course, performing your own independent research before making a single purchase is essential with any investment opportunity. Still, we feel the ETFs on this list are a great place to start.
Disclosure: The author has no ties to or holdings in any of the securities listed above
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Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Noah Zelvis is an American copywriter for The Stock Dork who is on a mission to help clarify the nuances of the financial world. With a background in tech design, Noah is no stranger to numbers and financial data. He now uses these powers for good by writing reviews for The Stock Dork. When he’s not working, you’ll likely find Noah out running or traveling.