Attention is on bank stocks.
Bank stocks were thrust into the spotlight at the end of 2016. The election of Donald Trump brought with it the potential for heavy deregulation in the financial space — a possible boon to banks. Moreover, the Federal Reserve raised interest rates and left open the possibility for more hikes in 2017, which should help expand bank profit margins. Investors could try to capitalize by hunting down a few individual banks, but for the uninitiated, bank stocks are among the most difficult to analyze. Most investors instead would be better off investing via exchange-traded funds, which allow them to make broad bets in a number of different approaches.
SPDR S&P Bank ETF (ticker: KBE)
The KBE is one of the most direct ways to buy a large swath of the nation’s biggest banks. This ETF holds 70 banks with an average market cap of $36 billion, leaning heavily on regional banks at nearly three-quarters of the fund’s weight. KBE utilizes an equal-weight methodology, meaning that larger regionals like First Republic Bank (FRC) are weighted similarly to national mega-banks such as JPMorgan Chase & Co. (JPM). Currently, the KBE’s top 10 holdings are weighted in a tight range between 2.4 and 2.32 percent.
Expenses: 0.35 percent, or $35 annually on every $10,000 invested
PowerShares KBW Bank Portfolio (KBWB)
If you would prefer your exposure to be concentrated in the nation’s larger banks, the KBWB is more up your alley. The Big Four banks — JPMorgan Chase, Bank of America Corp. (BAC), Citigroup (C) and Wells Fargo & Co. (WFC) — are all weighted around 8 percent, and U.S Bancorp (USB) is another nearly 8 percent weighting. Super regionals like M&T Bank Corp. (MTB) and PNC Financial Services Group (PNC) make up around 4 percent each. Just note that this is not a terribly diversified fund, with a concentrated portfolio of just 24 stocks.
Expenses: 0.35 percent
SPDR S&P Regional Banking ETF (KRE)
On the flip side, if you’re looking for a complete immersion in regional banks, that’s where the KRE comes in. KRE backs out the country’s superbanks, and instead offers a portfolio of 101 regional banks. Like the KBE, the KRE utilizes an equal-weight methodology — but like all equal-weight funds, KRE’s holdings shift between rebalancings, so certain banks make up more of the portfolio than others. Right now PNC, MTT and SunTrust Banks (STI) are at the top between 3.6 and 3.7 percent weight each.
Expenses: 0.35 percent
First Trust Nasdaq ABA Community Bank Index Fund (QABA)
Some investors would instead prefer to tap into the growth and buyout potential of small regional banks, which is where the QABA comes in. The index behind this ETF, which invests only in Nasdaq-listed bank stocks, excludes the 50 largest banks (and their holding companies), as well as banks that have an international specialization or a credit-card specialization. All told, QABA has 160 holdings that average less than $1 billion in market cap, led by the likes of California-based regionals East West Bancorp (EWBC) and PacWest Bancorp (PACW).
Expenses: 0.6 percent
Financial Select Sector SPDR Fund (XLF)
The XLF is one of a number of financial-sector funds that are heavily invested in banks, but also hold other types of financial stocks. So yes, the Big Four of JPM, WFC, BAC and C make up four of the five top holdings for a total of about 33 percent weight in the fund, the top holding is insurer Berkshire Hathaway (BRK.A, BRK.B). In fact, stocks classified as banks actually make up just 45 percent of the fund, with capital markets and insurance companies each getting about 19 percent, and the rest split between diversified financial services and consumer finance.
Expenses: 0.14 percent
Guggenheim S&P 500 Equal Weight Financials ETF (RYF)
If you’re looking for an equal-weight investment in the financial sector broadly, you can invest in the RYF — but note that doing so considerably lessens your exposure to the banking sector. In fact, insurance (33.5 percent) and capital markets (28.2 percent) are the top industry holdings of this fund, with banks making up just more than a quarter of the fund. Currently, PNC and M&T Bank are the only banks in the top 10 holdings, which are dominated by insurers like Progressive Corp. (PGR) and Willis Towers Watson (WLTW).
Expenses: 0.4 percent
PowerShares S&P SmallCap Financials Portfolio ETF (PSCF)
Much like QABA provides direct small-cap banking exposure, PowerShares provides a similar investment, just on broad financials. So while banks like Texas Capital Bancshares (TCBI) and United Bankshares (UBSI) make up 44 percent of the fund, investors also get hefty exposure to equity real estate investment trusts (23.7 percent) and insurers (12.6 percent), as well as mortgage finance, capital markets and even mortgage REITs. The diversified exposure includes a number of healthy dividends, helping power a decent yield of 2.6 percent — much better than most of the funds on this list.
Expenses: 0.29 percent
iShares Global Financials ETF (IXG)
Like many funds that don the “global” moniker, IXG is not a truly international fund — just less than half the fund is invested in U.S. financials. Still, this ETF is a great one-stop shop for financial sector and geographic diversification. More than 55 percent of the fund is invested in banks, with the rest split fairly evenly between diversified financials and insurance. After the U.S., IXG has decent weights in Canada (7.6 percent), the U.K. (7.3 percent) and Australia (6.4 percent). The dividend-friendly nature of many international bank stocks translates into a yield of more than 2.7 percent, too.
Expenses: 0.47 percent
Global X China Financials ETF (CHIX)
An investment in Chinese financials can seem like more of a gamble, but investors and traders looking for more explosive moves in the space could look to the CHIX — a 40-stock basket of Chinese financials that is heaviest in banks (45.7 percent), but with large positions in real estate (22.6 percent) and insurance (20.9 percent) as well. Top holdings include $180 billion China Construction Bank and China “Big Four” bank Industrial and Commercial Bank of China — both weighted at just more than 10 percent. Again, a foreign-focused financial fund is good for income hunters, with CHIX yielding 3 percent in dividends.
Expenses: 0.65 percent
Direxion Daily Financial Bull and Bear 3x Shares ETFs (FAS and FAZ)
Lastly, traders looking to make moves ahead of events such as Federal Reserve meetings, or in anticipation of upcoming financial policy, could give FAS and FAZ a try, depending on which way they lean. FAS is a three-times leveraged fund that provides triple the daily return of a broad financial index that includes everything from Berkshire to BofA to MasterCard (MA). FAS is the opposite, providing three times inverse exposure, so a 1 percent loss in the index should produce a 3 percent positive return. But remember — both of these are fast-moving trading tools, not meant for novice investors.
Expenses: 0.95 percent
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11 Ways to Buy Bank Stocks originally appeared on usnews.com
