Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

2 Bank ETFs To Keep On Your Radar As Yields Rise

By Investing.com (Tezcan Gecgil/Investing.com )ETFsMar 29, 2021 05:33AM ET
www.investing.com/analysis/2-bank-etfs-to-keep-on-your-radar-as-yields-rise-200570015
2 Bank ETFs To Keep On Your Radar As Yields Rise
By Investing.com (Tezcan Gecgil/Investing.com )   |  Mar 29, 2021 05:33AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The rise in Treasury yields has made the markets jittery. In recent weeks, the US 10-year Treasury yield hit its highest level since late March 2020 and moved above 1.7%. Now it is hovering at 1.67%. Analysts expect the potential economic bounce-back along with tighter monetary policy to easily mean further upside for yields.

Meanwhile, banking shares have been rising along with Treasury yields, a headwind for many industries, but not necessarily for financial institutions. Higher rates typically mean higher net interest income and profit margins for banks. For instance, the Dow Jones Banks Index has returned over 25% year-to-date (YTD). Interest rates affect banks' earnings and hence share prices.

In previous articles, we covered what the increase in yields and inflation might mean, as well as several exchange-traded funds (ETFs) focusing on the financial sector (here, here and here).

Today, we continue to introduce two more banking ETFs that might be of interest to readers who expect risks to financial institutions to dissipate further in the coming months.

1. Invesco KBW Bank ETF

  • Current Price: $62.58
  • 52-Week Range: $30.50 - $65.49
  • Dividend Yield: 1.99%
  • Expense Ratio: 0.35% per year

The Invesco KBW Bank ETF (NASDAQ:KBWB) invests in US banks, including large national US money centers (i.e., large-capitalization banks in cities like New York and with national and global operations), regional banks and thrift institutions.

KBWB Weekly
KBWB Weekly

KBWB, which tracks the Settle KBW Nasdaq Bank Index, holds 26 stocks. Since its inception in November 2011, assets under management have reached $2.2 billion.

The top ten names comprise about 57% of the fund. Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and JPMorgan Chase (NYSE:JPM) are currently the leading stocks in KBWB. These large banks have diversified revenue streams, such as investment banking, asset management and trading, and thus are not just reliant on interest rate moves.

Since the start of 2021, the fund is up over 24%, and hit an all-time high on Mar. 18. Forward P/E and P/B ratios are 13.22 and 0.79. Put another way, despite the recent gains, the fund is not expensive from a valuation standpoint.

Last week, the Federal Reserve Board announced that as of the end of June, most US banks will be able to increase dividend payouts and buy back shares. The current restrictions were put into place in April 2020. However, limitations will continue for financial institutions that do not perform well in stress tests. Many of the constituents of KBWB are likely to meet the requirements of the Fed. Therefore, the fund could easily see further capital inflows.

However, we should remind readers that the earnings season will soon start with reports by banks. Therefore, the sector is likely to be volatile in April. Potential investors could regard declines as an opportunity to enter the fund.

2. iShares US Regional Banks ETF

  • Current Price: $57.68
  • 52-Week Range: $25.85 - $60.79
  • Dividend Yield: 2.11%
  • Expense Ratio: 0.42% per year

The iShares US Regional Banks ETF (NYSE:IAT) gives access to the regional bank sub-sector of the US equity market. These institutions are typically small and mid-size banks stateside.

IAT Weekly
IAT Weekly


IAT, which has 54 holdings, tracks the returns of the Dow Jones US Select Regional Banks Index. Both the index and the fund are reconstituted quarterly. The fund began trading in May 2006, and assets stand at $645.7 million.

As the leading ten stocks make up over 60% of the fund, it is a top-heavy ETF. Among the premier names are Trust Financial (NYSE:TFC), PNC Financial Services (NYSE:PNC), US Bancorp (NYSE:USB) and First Republic Bank (NYSE:FRC).

Year-to-date (YTD), the ETF returned over 27%. Trailing P/E and P/B ratios stand at 19.13 and 1.41, respectively. Given the recent run-up in price, we'd wait for a potential decline to buy into the fund. A fall toward the $55 level or even below would offer a better margin of safety.

Although IAT currently sits at a record high level, we believe the firms in the fund could continue to create shareholder value in future quarters, too. However, those investors expecting yields to decline and even re-test previous lows would need to be cautious in terms of investing in banking shares or funds at these levels.

2 Bank ETFs To Keep On Your Radar As Yields Rise
 

Related Articles

Mike Paulenoff
Upward Price Pressure In Retail ETF By Mike Paulenoff - Jun 01, 2021

Back on May 14, with SPDR® S&P Retail ETF (NYSE:XRT) trading at 89.56, we discussed the following technical (and macro) setup with our MPTrader members:  "My conclusion technically...

2 Bank ETFs To Keep On Your Radar As Yields Rise

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Jokers R Us
Jokers R Us Mar 31, 2021 9:44AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Garbage
Luqman Firdaus
Luqman Firdaus Mar 29, 2021 7:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
love
Precious Munyai
Precious Munyai Mar 29, 2021 12:08PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Interesting
Islomiddin Umarov
Islomiddin Umarov Mar 29, 2021 12:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I'm don't
Najeeb Khan
Najeeb Khan Mar 29, 2021 12:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
good
Luqman Firdaus
Luqman Firdaus Mar 29, 2021 5:25AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
ok love investing
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email