Banks have played a major role in the development of the United States as the world’s superpower. Without banks, loans would be hard to come by, businesses couldn’t access the financing they need to grow, and home ownership would be little more than a dream for most.
With banks playing such a significant role in the development of the U.S. economy, it only makes sense that the industry has seen significant growth and generated compelling returns for investors who have made wise decisions within it.
Best Bank ETFs to Buy
There are tons of ETFs available on the stock market today. These funds pool investments from a large group of investors to be used in accordance with the investment strategy the fund follows. Many ETFs follow a strategy of investing in the banking sector.
When investing in these funds, you’ll gain diversified exposure to different areas of the banking industry or to the banking sector as a whole, reducing the volatility risks associated with investing in individual stocks.
As you look for investment opportunities, you’ll quickly find that there are a ton of banking-focused funds to choose from. So, how do you dial it down to a handful of reasonable candidates? Here are six of the top-rated funds focused on investing in bank-related issuers.
1. SPDR S&P Bank ETF (KBE)
Strong Dividends With Above-Average Price Appreciation
The SPDR S&P Bank ETF is managed by State Street Advisors, the world’s third-largest asset manager by assets under management.
The fund is designed to track the S&P Banks Select Industry Index, an index consisting of a diversified portfolio of U.S. bank stocks with market caps ranging from small cap to large cap.
The KBE ETF has a strong history of solid performance with costs that are below the industry average. Here are the key stats:
- Expense Ratio. The expense ratio on the fund is 0.35%. That’s slightly below the industry average of 0.44%, according to Experian. The lower-than-average expense ratio gives you the ability to retain more of your returns.
- Historic Performance. Although the expense ratio on the fund is relatively low, investors won’t give up performance. Over the past year, investors in KBE have experienced gains of 67.28%, with three- and five-year returns coming in at 5.63% and 13.44%, respectively.
- Dividend Yield. The fund paid a dividend yield of 1.87% in the past 12 months; the forward-looking yield is 2.03%.
- Asset Allocation. Because the fund tracks the S&P Bank Select Industry Index, it invests in a highly diversified list of investments in the banking sector. The five largest holdings in the ETF include Silvergate Capital Corp (SI), Bank of New York Mellon Corp (BK), PNC Financial Services Group (PNC), Commerce Bancshares (CBSH), and East West Bancorp (EWBC).
- Net Assets. Investors have trusted the fund with more than $3.37 billion so far. With such a large amount of assets in the fund, it’s clear it is a popular option.
- ESG Rating. According to ETF.com, the fund has an ESG score of 5.24 out of 10, giving it a slight below-average ESG rating of BBB. This score gauges a fund based on environmental, social, and governance factors. So, although the fund is known for low expenses and compelling returns, it may not be the best choice for impact investors.
2. SPDR S&P Regional Banking ETF (KRE)
Diversified Exposure to Regional Banks
Another fund managed by State Street Advisors, the SPDR S&P Regional Banking ETF was designed to track the S&P Regional Banks Select Industry Index, an index that represents the regional banks segment of the U.S. banking industry. As a result of the fund tracking this equal-weighted index, investors in the fund gain highly diversified exposure to regional banks in the United States, including small-, mid-, and large-cap regional bank stocks.
As with most State Street Advisors funds, investors in this ETF can look forward to relatively low costs and strong performance, making it another popular option.
- Expense Ratio. The expense ratio on the fund is 0.35%, slightly below the industry average, making it another option that lets you hold onto more of your gains.
- Historic Performance. Known for generating strong, relatively consistent returns, the fund has led to gains of 67.28% over the past year. In the past three and five years, returns have come in at 5.63% and 13.44%, respectively.
- Dividend Yield. Dividends on the fund have been overwhelmingly strong, with trailing 12-month yields coming in at 2.00%.
- Asset Allocation. As the name of the fund suggests, this ETF focuses on investments in a diversified group of U.S. regional banks. The top five holdings include Silvergate Capital Corp (SI), Bank of New York Mellon Corp (BK), PNC Financial Services Group (PNC), Commerce Bancshares (CBSH), and East West Bancorp (EWBC).
- Net Assets. All told, investors have piled more than $3.37 billion into the fund, showing the strong popularity it enjoys.
- ESG Rating. The ESG score of 4.42 out of 10 gives the fund an ESG rating of BBB, which is slightly below average.
3. Invesco KBW Bank ETF (KBWB)
Diversified Exposure to Banks Weighted Toward Banking Giants
It’s hard to put together a list of the best ETFs in any category without mentioning Invesco. Founded in 1935, the fund management firm has a long history of providing quality services to the investing community.
The Invesco KBW Bank ETF was designed to closely track the KBW Nasdaq Bank Index, an index that includes a long list of primarily U.S. banking companies. Because the fund tracks this particular index, investors can expect highly diversified exposure to the U.S. banking and financial services sector as a whole.
The ETF is known for a history of generating compelling returns. Like others on this list, investors enjoy lower-than-average expenses with better-than-average gains. Here are the key stats:
- Expense Ratio. The fund comes with annual costs of 0.35% of your investment, making this yet another option that comes in below the industry average cost.
- Historic Performance. The historic performance on the fund has been impressive to say the least. Over the past year, investors have realized 72.66% growth, with three- and five-year returns coming in at 9.41% and 16.78%, respectively.
- Dividend Yield. The dividend yield on the ETF sits at 1.86%, making it another strong income generator and giving you the option to consistently cash in on your investment or reinvest your dividends for larger long-run returns.
- Asset Allocation. The fund provides highly diversified exposure to the entire U.S. banking and financial services sector. Some of the largest holdings in the investment portfolio include Bank of America Corporation (BAC), Wells Fargo & Company (WFC), JPMorgan Chase & Co. (JPM), U.S. Bancorp (USB), and Citigroup (C).
- Net Assets. With more than $2.36 billion in assets under management, the fund is another popular choice among investors looking to gain exposure to the banking and financial services sector.
- ESG Rating. The fund has an ESG rating of 7.93 out of 10, giving it a AA ESG rating. That’s a strong ESG rating for investments in the banking sector, suggesting the fund makes a perfect choice for investors looking to generate returns as well as make a social and environmental impact with their investing dollars.
4. iShares U.S. Regional Banks ETF (IAT)
Mid-Sized Regional Banks Poised for Growth
Next up is the iShares U.S. Regional Banks ETF. Founded in 2000, iShares is the youngest fund manager on this list. While the company is relatively young, it hit Wall Street with a splash, quickly becoming one of the most trusted managers on the market.
The fund is designed to track the performance of an index largely made up of mid-sized U.S. banks. As a result, when investing in the fund, you’ll gain diversified exposure to mid-cap banks in the U.S. that are poised for growth.
While the expenses associated with the fund are the highest on this list, they are still below the industry average. Moreover, the historic performance of the ETF makes it hard to ignore. Here are the key stats:
- Expense Ratio. Investors in the fund will pay fees of 0.42% on an annual basis. That’s about the industry average and right in line with what ETF investors expect to see.
- Historic Performance. The performance of the fund has been impressive. In the past year, investors have realized gains of more than 70.09%. Over the past three and five years, gains have clocked in at 6.14% and 13.33%, respectively.
- Dividend Yield. While price appreciation has been impressive, the dividend yield associated with the fund is the lowest on the list at 1.83%. Nonetheless, that yield means investors can still expect to see reasonable dividend payments.
- Asset Allocation. As mentioned above, the fund was designed to provide diversified exposure to mid-sized U.S. banks. Its five largest holdings include PNC Financial Services Group (PNC), U.S. Bancorp (USB), Truist Financial Corporation (TFC), First Republic Bank (FRC), and SVB Financial Group (SIVB).
- Net Assets. All told, the fund has generated $1.13 billion in investments from the investing community. Although it’s not the most popular fund on this list, the fund has been gaining serious traction as of late.
- ESG Rating. The ESG score on the fund is 6.2, giving it a rating of A. That means the fund’s social and environmental impact is in line with the industry average.
Investing in ETFs is a low-cost way to buy into the sectors and strategies you’re looking to gain exposure to in a highly diversified way. This, combined with the strong growth seen throughout history in the banking sector, makes it no surprise that bank ETFs are some of the most popular investment options on Wall Street.
As is always the case, it’s important to do your research. Not all ETFs are created equal; as you’ve seen above, they all come with their own expense ratios, dividend yields, and historical performance. Blindly choosing one to invest in is akin to gambling.
Nonetheless, wise decisions when it comes to investing in these assets have the potential to yield market-beating gains while minimizing costs.
Disclaimer: The author currently has no positions in any security mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the funds mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.