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5 Financial ETFs Outperforming the Market

·4 min read

The financial sector has been outperforming in recent weeks driven by the comeback of risk-on trade. This is especially true as Financial Select Sector SPDR XLF has risen 12.1% over the past month compared to gains of 10.8% for SPDR S&P 500 ETF Trust SPY.

In fact, iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI, SPDR S&P Capital Markets ETF KCE, SPDR S&P Bank ETF KBE, Invesco KBW Regional Banking ETF KBWR and SPDR S&P Regional Banking ETF KRE leading the way, gaining at least 16% each over the past month.

A rising rate environment is highly beneficial for the financial sector as it bolsters profits for banks, insurance companies, discount brokerage firms and asset managers. Additionally, financial stocks have become extremely cheap after a heavy sell-off in the first half of the year as rising inflation has led to fears of recession (read: 5 Most-Loved Dividend ETFs of This Year).

The latest bouts of data indicate that economic growth is improving, resulting in an upside for the rising sector. Hiring picked up in July and the economy has fully recovered all the jobs it lost during the COVID-19 shutdowns. The unemployment rate also fell to the pre-pandemic levels of 3.5%. Inflation in the United States moderated slightly in July as energy and gasoline prices dropped. Consumer sentiment improved in August from a record low earlier this summer.

Added to the strength is the Fed’s stress tests of the banks in June. The results showed that the largest U.S. banks would be able to keep lending to businesses and households in a downturn.

We have profiled the above-mentioned ETFs below:

iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI)

iShares U.S. Broker-Dealers & Securities Exchanges ETF offers exposure to the 25 U.S. investment banks, discount brokerages, and stock exchange firms by tracking the Dow Jones U.S. Select Investment Services Index (read: Time for Bank ETFs on Decent fundamentals?).

iShares U.S. Broker-Dealers & Securities Exchanges ETF has accumulated $537.3 million in AUM and trades in a moderate volume of nearly 49,000 shares a day. The product charges 39 bps in fees per year from investors and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

SPDR S&P Capital Markets ETF (KCE)

SPDR S&P Capital Markets ETF tracks the S&P Capital Markets Select Industry Index, holding 65 stocks in its portfolio. Asset management & custody banks take the top position in the basket at 44.3% while investment banking & brokerage, and financial exchange and data take the remaining share in terms of industrial profile.

SPDR S&P Capital Markets ETF manages assets worth $112 million in AUM, while the average volume is moderate at 9,000 shares. It charges 35 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

SPDR S&P Bank ETF (KBE)

SPDR S&P Bank ETF offers equal-weight exposure to 101 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with 74.8% share, while thrifts & mortgage finance, diversified banks, other diversified financial services and asset management & custody banks take the remainder.

SPDR S&P Bank ETF has amassed $2.3 billion in its asset base while trading in a heavy volume of 1.8 million shares a day, on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.

Invesco KBW Regional Banking ETF (KBWR)

Invesco KBW Regional Banking ETF offers exposure to companies primarily engaged in U.S. regional banking activities and follows the KBW Nasdaq Regional Banking Index. Holding 51 stocks in its basket, it is a relatively less-popular and less-liquid option in the space, with AUM of $82.1 million and an average daily volume of 4,000 shares (see: all the Financials ETFs here).

Invesco KBW Regional Banking ETF charges 35 bps in fees per year from investors and has a Zacks ETF Rank #1 with a High risk outlook.

SPDR S&P Regional Banking ETF (KRE)

SPDR S&P Regional Banking ETF provides exposure to the regional banking segment by tracking the S&P Regional Banks Select Industry Index. It holds 144 stocks in its basket, with each accounting for no more than 1.7% of the assets.

SPDR S&P Regional Banking ETF has AUM of $3.6 billion and charges 35 bps in annual fees. It trades in an average daily volume of 6 million shares.  


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SPDR S&P 500 ETF (SPY): ETF Research Reports
 
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
 
SPDR S&P Bank ETF (KBE): ETF Research Reports
 
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
 
SPDR S&P Capital Markets ETF (KCE): ETF Research Reports
 
iShares U.S. BrokerDealers & Securities Exchanges ETF (IAI): ETF Research Reports
 
Invesco KBW Regional Banking ETF (KBWR): ETF Research Reports
 
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Zacks Investment Research