We have mentioned the broader U.S. Financials Equity sector in terms of XLF (SPDR Financial Select Sector SPDR, Expense Ratio 0.15%) options trading heating up before July core earnings season for the major reporting members of the index, and today we would rather hone in on the “Banking” sector within this greater space.
Two important “U.S. Bank” ETFs are KBE (SPDR S&P Bank, Expense Ratio 0.35%), which is now a $3 billion fund in terms of asset size, and it employs a modified equal-weighted methodology, so from a portfolio standpoint looks nothing like say XLF in terms of having concentrated exposures in the major money center bank names like WFC, JPM, and so on.
If we look at top holdings within KBE we see the top five names as follows: OZRK (1.82%), MTG (1.77%), GBCI (1.71%), RDN (1.69%), and CFG (1.67%). It is fair to say that these are not exactly household names, but the fund is designed to provide broad, roughly equal weighted exposure across a swath of banking names.
A second ETF in this space is KBWB (PowerShares KBW Bank Portfolio, Expense Ratio 0.35%) is only about one tenth the size of KBE in terms of AUM size, but also noteworthy going into next month’s core earnings season and worth examining.
Unlike KBE, this fund takes a market cap weighted index approach, and we see top holdings as follows: JPM (8.46%), WFC (8.39%), C (8.14%), BAC (7.84%), and STI (4.96%). The takeaway here from why this fund is different from say “XLF” is that it is “Bank” name specific, and we would not expect to see a BRK.B for example, an insurance company, or a Broker/Dealer like GS within the holdings.
From a market cap perspective, we see that about 62% of the portfolio lies across Mega and Large Cap Banking names, with the remainder of the portfolio owning Mid-Cap banks. If we want to get entirely away from Large Cap bank exposure, we can also look to a lesser known ETF in the greater Banking space, that being QABA (First Trust NASDAQ ABA Community Bank, Expense Ratio 0.60%).
This fund only has about $75 million in assets under management but from a portfolio perspective holds no Mega nor Large Cap names, with 24% of the holdings classified as “Mid Cap,” and then 40% of the portfolio in Small-Caps and 36% in Micro Cap bank names. Top holdings here again are not exactly household names: SBNY (4.14%), EWBC (3.63%), ZION (3.46%), PACW (2.69%), and TFSL (2.61%).
SPDR S&P Bank ETF
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