5 Banking ETFs That Outperformed Wall Street in January
Wall Street had an extremely rough start to 2022. The major market indices are in the red for the first month of the year. However, the S&P Banks Select Industry Index has risen 0.9% in the past month against the broader S&P 500 Index’s loss of 5.3%. In fact, the S&P 500 index witnessed its worst month since March 2020.
Several factors are working in favor of the banking sector. 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. The 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.
The Federal Reserve may take a more aggressive approach in raising interest rates. Post the Federal Reserve Open Market Committee’s meeting, Chairman Jerome Powell indicated that the first rate hike since 2018 could be seen as early as in March 2022. The Federal Reserve already started tapering the bond purchases, which it expects to complete by March this year. However, the magnitude and the month of the interest rate hike have not been clearly stated yet.
The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors. The progress in coronavirus vaccine rollout presents a strong case,favoring a faster return to normalcy and economic recovery. As the economy starts operating in full swing, banks will be able to generate more business.
According to the latest reports, the U.S. economy grew at an annualized 6.9% in the fourth quarter of 2021, surpassing expectations of 5.5%, following a 2.3% uptick in the previous three-month period. For 2021, the economy advanced 5.7%, the highest since 1984, per trading economics.
In this regard, Mike Reynolds, vice president of investment strategy at Glenmede, mentioned that “The Q4 GDP report was a nice upside surprise in a string of recently underwhelming economic data points,” according to a CNBC article.
Banking ETFs in Focus
Against this backdrop, let’s take a look at some banking ETFs that have outperformed the market in January:
First Trust Nasdaq Bank ETF FTXO — up 3.3% in the past month
First Trust Nasdaq Bank ETF 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 $327.4 million and charges 0.60% in expense ratio (read: 5 Sector ETFs That Outperformed in January).
Invesco KBW Bank ETF KBWB — up 2.2%
Invesco KBW Bank ETF 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 $3.50 billion and charges 0.35% in expense ratio (read: 7 ETF Predictions for 2022).
Invesco KBW Regional Banking ETF KBWR — up 2.1%
Invesco KBW Bank ETF is based on the KBW Nasdaq Regional Banking Index. The index is a modified-market capitalization-weighted index of companies, primarily engaged in US regional banking activities. It has AUM of $83.3 million and charges 0.35% in expense ratio.
iShares U.S. Regional Banks ETF IAT — up 1.6%
iShares U.S. Regional Banks ETF intends to track the investment results of an index composed of U.S. equities in the regional banks sector. It has AUM of $1.45 billion and charges 0.41% in expense ratio (read: Fed Rate Hike in the Cards: Banking ETFs Likely to Gain).
SPDR S&P Regional Banking ETF KRE — up 1.1%
SPDR S&P Regional Banking ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the S&P Regional Banks Select Industry Index. It has AUM of $5.73 billion and charges 0.35% in expense ratio (read: Bet on These 5 ETF Areas for 2022).
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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
Invesco KBW Regional Banking ETF (KBWR): ETF Research Reports
First Trust NASDAQ Bank ETF (FTXO): ETF Research Reports
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