“U.S. banks have lagged the broader market and European peers year-to-date. We believe this trend has turned. We see the group up in the medium term on sustained economic growth, Fed normalization and prospects for deregulation and payouts,” according to BlackRock.
BlackRock also argued that U.S. regional banks could benefit the most as they tend to have a larger share of businesses in traditional banking services, such as loans and deposits, compared to their larger peers.
Looking ahead, analysts project U.S. bank earnings to expand 12.8% in 2018, and BlackRock sees “scope for this number to improve.” Furthermore, the sector is trading at cheap valuations, with U.S. banks discounted by24% compared to 5% for European banks.
Investors interested in gaining exposure to the banking industry can look to broad financial plays such as the Fidelity MSCI Financials Index ETF (NYSEArca: FNCL), Financial Select Sector SPDR (NYSEArca: XLF), iShares U.S. Financials ETF (NYSEArca: IYF) and Vanguard Financials ETF (NYSEArca: VFH). However, these broad plays mostly target large-cap Wall Street banks.
For smaller bank exposures, investors can look to options like the iShares U.S. Regional Banks ETF (NYSEArca: IAT), SPDR S&P Regional Banking ETF (NYSEArca: KRE), PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR) and SPDR S&P Bank ETF (NYSEArca: KBE), which take a larger focus mid- and small-sized regional banks.
For more information on the banking industry, visit our financial category.