3 Bank ETFs Offering Added Value As Fed Signals Higher Rates In 2022
Investing.com | Sep 23, 2021 04:34
Yesterday, the Fed kept benchmark interest rates unchanged, close to zero. The central bank is likely to start reducing monthly asset purchases though, some believe as soon as November. However, no specific date was given.
The Fed’s statement highlighted:
“Risks to the economic outlook remain. The committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run."
The Consumer Price Index rose 5.3% over the last 12 months. So, Wall Street is expecting the Fed to start increasing interest rates in the coming months. In that case, financial stocks, which have come under pressure in recent weeks, could benefit.
Therefore, today we introduce three exchange traded funds (ETFs) that could be of interest to investors who believe banks will create shareholder value in the final quarter of the year.
h2 1. Financial Select Sector SPDR Fund/h2Current Price: $37.11
52-Week Range: $22.94 - $39.04
Dividend Yield: 1.62%
Expense Ratio: 0.12% per year
The Financial Select Sector SPDR® Fund (NYSE:XLF) invests in a number of the leading banks and financial institutions in the US. The fund was first listed in December 1998.
XLF has 65 holdings and the top 10 names comprise about 60% of net assets of $38.4 billion. In terms of sectors, we see banks (37.33%), followed by firms operating with capital markets (27.03%) and insurance businesses (17.24%).
Leading names in the roster are Warren Buffett’s Berkshire Hathaway (NYSE:BRKa), JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and Morgan Stanley (NYSE:MS).
The ETF is up 27.64% this year and 52.53% in the past 52 weeks. It hit an all-time high on Aug. 30. Since then, the fund has lost about 5%. Trailing P/E and P/B ratios are 13.10x and 1.58x. Interested readers could consider investing around these levels.
h2 2. iShares US Regional Banks ETF/h2Current Price: $57.26
52-Week Range: $30.65 - $62.94
Dividend Yield: 2.07%
Expense Ratio: 0.41% per year
The iShares US Regional Banks ETF (NYSE:IAT) invests in regional banks in the US. The ETF started trading in May 2006, and its net assets stand at $1.16 billion.
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IAT, which has 39 holdings, tracks the returns of the Dow Jones US Select Regional Banks index. As the leading 10 stocks make up more than 65% of the fund, it is also a top-heavy ETF.
Among the premier names are PNC Financial Services (NYSE:PNC), US Bancorp (NYSE:USB), Trust Financial Corp (NYSE:TFC), First Republic Bank (NYSE:FRC) and SVB Financial Group (NASDAQ:SIVB).
Year-to-date, IAT returned more than 26.5% and is up almost 79% in the past 12 months. The fund saw a record high in May. But since then, it has lost about 9.5% of its value.
Trailing P/E and P/B ratios stand at 19.41x and 1.45x, respectively. Given the recent profit-taking, long investors could consider buying the dips.
h2 3. iShares US Broker-Dealers & Securities Exchanges ETF/h2Current Price: $104.94
52-Week Range: $58.89 - $111.17
Dividend Yield: 1.01%
Expense Ratio: 0.41% per year
The iShares US Broker-Dealers & Securities Exchanges ETF (NYSE:IAI) gives exposure to US investment banks, discount brokerages as well as stock exchanges.
IAI, which has 25 holdings, tracks the returns of the Dow Jones US Select Investment Services Index. The fund began trading in May 2006, and has around $859 million in assets.
In terms of the sub-sectoral breakdown, the investment banking and brokerage segment comprises the highest slice, with 77.26%. Next in line is the financials exchanges and data segment, with 22.25%. The fund’s top 10 companies account for 78% of the fund.
Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), LPL Financial (NASDAQ:LPLA), Cboe Global Markets (NYSE:CBOE), Nasdaq Inc (NASDAQ:NDAQ) and Charles Schwab (NYSE:SCHW) lead the names in the ETF.
Over the past year, the fund is up about 72.1% and returned 31.5% in 2021. IAI also saw a record high on Aug. 30, but lost about 6% since then.
Trailing P/E and P/B ratios stand at 18.35s and 2.30x. Potential investors could regard a decline toward the $100 level as a better entry point.
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