The banking sector is witnessing growing investor attention considering the improving performance of the sector over the past year. The S&P Banks Select Industry Index has surged 62.1% in the past year compared with the broader S&P 500 Index’s rise of 35.5%.
The chances of the Federal Reserve tapering its monthly bond purchases in the near term can work for the space. The shift toward a tighter monetary policy will push yields higher, thereby helping the financial sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. Notably, steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand.
Meanwhile, Wall Street has impressed investors with an attractive rally in the three broader indices in August. The second-quarter earnings season saw better-than-expected results, stimulating the rally in stock markets. According to a CNBC article, the S&P 500 is on track to witness the largest increase since fourth-quarter 2009 by recording an earnings growth rate of 95.4%.
The FDA granting the first full U.S. approval to Pfizer (NYSE:PFE)/BioNTech’s (BNTX) coronavirus vaccine, Comirnaty (BNT162b), can help in combatting the resurging COVID-19 cases. The full FDA approval is expected to increase the confidence for imposing vaccine mandates. Also, the unvaccinated population is now more likely to opt for vaccinations. According to a CNBC article, the Kaiser Family Foundation survey reflected that three in 10 unvaccinated adults were more likely to get jabbed if one of the vaccines received full approval. The market participants are also upbeat about the chances of peaking delta variant cases.
Thus, with the health crisis coming under control with increased vaccinations, rapid business reopening and a faster return to normalcy, the U.S. economy is expected to progress well.
Banking ETFs to Keep a Track on
Against this backdrop, let’s take a look at some banking ETFs that can gain from the current environment:
SPDR S&P Regional Banking ETF KRE
The fund seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the S&P Regional Banks Select Industry Index. It has AUM of $4.48 billion and charges 0.35% in expense ratio (read: 5 Financial ETFs to Buy on Taper Talks).
SPDR S&P Bank ETF KBE
The fund seeks to provide investment results that before fees and expenses correspond generally to the total return performance of the S&P Banks Select Industry Index. It has AUM of $3.13 billion and charges 0.35% in expense ratio (read: Is Fed Preparing for QE Taper? ETFs to Buy).
Invesco KBW Bank ETF KBWB
The fund is based on the KBW Nasdaq Bank Index. The index is a modified-market capitalization-weighted index of companies, primarily engaged in U.S. banking activities. It has AUM of $2.87 billion and charges 0.35% in expense ratio (read: Banking Earnings Decent: Time to Buy Financial ETFs on Value?).
iShares U.S. Regional Banks ETF IAT
The fund intends to track the investment results of an index composed of U.S. equities in the regional banks sector. It has AUM of $1.19 billion and charges 0.41% in expense ratio.
First Trust Nasdaq Bank ETF FTXO
The fund seeks investment results that correspond generally to the price and yield, before fees and expenses, of the Nasdaq US Smart Banks Index. The index is a modified factor-weighted index, designed to provide exposure to U.S. companies within the banking industry. It has AUM of $227.4 million and charges 0.60% in expense ratio (read: 5 Top-Ranked ETFs That Outperformed in August).
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SPDR S&P Bank ETF (KBE): ETF Research Reports
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
Invesco KBW Bank ETF (KBWB): ETF Research Reports
iShares U.S. Regional Banks ETF (IAT): ETF Research Reports
First Trust NASDAQ Bank ETF (FTXO): ETF Research Reports
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