Best Bank ETFs for 2024
Investing in banking stocks through ETFs can give investors broad exposure to the trends in the banking sector. In this 'Best Bank ETFs to Watch' article, learn more about bank ETFs, a few to watch this year, and the pros and cons of investing in this sector.
Table of Contents
Key Takeaways
- Bank exchange-traded funds (ETFs) are funds that invest in a basket of different stocks involved in the banking sector.
- The total revenue of the US commercial banking sector passed $1.1 trillion in 2022.
- Bank ETFs can provide investors exposure to the performance of the banking sector across the US, UK, or European stock markets.
- Bank stocks held in an ETF are sensitive to how well the economy is performing and are also influenced by interest rate policy.
What are Bank ETFs
Bank ETFs are exchange-traded funds (ETFs) that invest primarily in the banking sector. An ETF can contain any given number of stocks, though usually the stocks that are included in each ETF all share a common theme. For bank ETFs, that theme is the stock belonging to a bank, or a similar business providing financial services.
It is worth noting that in general there are different types of banks such as commercial banking and investment banking. Commercial banks primarily focus on taking in deposits from consumers and then lending that capital back out to consumers, making a profit from the difference in interest rates.
Investment banking provides financing to invest in early businesses to try and profit from their growth or public launch. Banks that derive their income from a mix of these two types of banking are generally considered to be more diversified.
Best Bank ETFs to Watch
It is important to note that whatever constitutes the ‘best’ investment differs on an investor-by-investor basis and is dependent on factors such as personal financial goals and situation. This list of bank ETFs should therefore serve as a starting point for investors looking to perform research on the banking sector and related bank ETFs.
- SPDR S&P Bank ETF – Invests Into US Banks With Equal-weighting
- PowerShares KBW Bank Portfolio ETF – Invests into the US Banking Sector With Capitalisation-Weighting Strategy
SPDR S&P Bank ETF
The SPDR S&P Bank ETF is issued by State Street Global Advisors and strives to mimic the performance of the S&P Banks Select Industry Index. The fund offers exposure to a wide array of banks within the S&P 500 index, including both regional and diversified banks. The fund’s capital is allocated according to a modified equal weighting strategy, which offers investors exposure to small-cap, mid-cap, as well as large-cap bank stocks. The fund has just over $1 billion in assets under management.
The top 10 holdings of this fund by size of capital allocation are CoreBridge Financial Inc (~1.8%), PNC Financial Services Group (~1.75%), First Citizens BCSHS Cl A (~1.74%), M+T Bank Corp (~1.72%), Apollo Global Management Inc (~1.72%), JPMorgan Chase + Co (~1.69%), Citigroup Inc (~1.68%), Cullen/Frost Bankers Inc (~1.66%), Voya Financial Inc (~1.64%), and Well Fargo + Co (~1.63%).
The top sectors this fund invests in are Regional Banks (~65%) and Diversified Banks (~16%). The rest of the fund’s capital is spread over Diversified Financial Services (~8%), Commercial & Residential Mortgage Finance (~7%), and Asset Management & Custody Banks (~3%). With Admirals, you can trade the SPDR S&P Bank ETF CFD. This is a derivative contract of the underlying market which enables you to trade long and short.
PowerShares KBW Bank Portfolio ETF
The PowerShares KBW Bank Portfolio ETF is issued by Invesco, a large American asset manager with around $1.4 trillion in assets under management. This fund is an index fund that strives to match the performance of the KBW Nasdaq Bank Index. The index is composed of US money centers, regional banks, and thrift institutions that are publicly traded in the US. Unlike the previous ETF, this fund is market capitalization-weighted. This fund has around $1.4 billion in assets.
The top 10 holdings of this fund by size of capital allocation are: JPMorgan Chase & Co (~8.5%), Wells Fargo & Co (~8.2%), Goldman Sachs Group Inc (~8.2%), Morgan Stanley (~8.1%), Bank of America Corp (~7.8%), M&T Bank Corp (~4.3%), PNC Financial Services Group Inc (~4.3%), Citigroup Inc (~4.2%), State Street Corp (~4.1%), and Bank of New York Mellon Corp (~4%).
The top sectors this fund invests in are Diversified Banks (~44%), Regional Banks (~24%), Investment Banking & Brokerage (~15%), Asset Management & Custody (~12%), and Consumer Finance (~4%). With Admirals, you can trade the PowerShares KBW Bank Portfolio ETF CFD. This is a derivative contract of the underlying market which enables you to trade long and short.
How to Invest in Bank ETFs
With Admirals, you can invest in bank ETFs and stocks with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- Germany and France stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission
You can learn more about investing commissions on the Admirals Contract Specification page. You can search for global stocks and ETFs from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Conclusion: Pros & Cons of Investing in Bank ETFs
The banking sector is one of the most well-regulated sectors in the Western world. Though banks have always had to follow strict rules, the impact of the 2008 financial crisis caused governments and politicians to hold banks more accountable for the impact on the economy of their business practices. These days, banks are legally required to hold minimum capital levels which protect them against insolvency during economic issues.
Banks are intimately connected to the economy and bank stocks are subsequently hit with downturns in times of economic turmoil. This sensitivity of bank stocks to the state of the economy is due to the leveraged nature of their balance sheets: banks tend to loan money themselves that they subsequently use to make investments or loan at higher rates to consumers. The leverage many banks employ means that a slight economic downturn can have serious consequences for their solvency.
In a similar fashion, banks are sensitive to the changes in interest rates set by the central bank. Banks take in deposits and lend out money to their clients, profiting from the difference in the interest rates they provide on deposits versus the interest rates they charge on outstanding loans. Whenever the central bank lowers interest rates, banks must follow suit, making their primary source of income less profitable.
Continue Reading:
- Best Shares to Buy
- Best Bank Stocks to Watch
- What Are ETFs? ETFs Explained
- How to Trade ETFs with €1000
- The CFD Trading Guide
FAQs on Best Bank ETFs
What are Bank ETFs?
Bank ETFs are ETFs that invest primarily in banks, money centers, and similar financial institutions that provide financial services to businesses, consumers, and private individuals. Banks can generally be subdivided into commercial banks and investment banks.
Are bank ETFs a good investment?
What constitutes a good investment for an investor differs with each individual. Bank ETFs provide exposure to the trend of the banking sector which can sometimes be up and sometimes down. It's important to do thorough research to understand the state of the banking sector and its potential future growth.
Are there any bank ETFs?
There is a wide selection of bank ETFs on the market, for the US, European, and even emerging markets. They differ in their weighting strategy, whether they invest in small or large capitalization banks, and of course, which region’s banks they cover.
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