Add the PowerShares KBW Bank Portfolio (NASDAQ: KBWB) to the list of bank-heavy exchange traded funds that are delivering are bouncing back in epic fashion. Over the past month, the PowerShares KBW Bank Portfolio is higher by nearly 10%.
KBWB tracks the widely followed KBW Nasdaq Bank Index. That index “is a modified-market capitalization-weighted index that seeks to reflect the performance of companies that do business as banks or thrifts that are publicly-traded in the US. The Index is compiled, maintained and calculated by Keefe, Bruyette & Woods, Inc. and is composed of approximately 24 companies representing leading national money centers and regional banks or thrifts,” according to PowerShares, the fourth-largest U.S. ETF sponsor.
As conditions improve, the Federal Reserve will tighten its monetary policy to obviate an overheating economy. The central bank has already outlined plans to start winding down its trillion dollar balance sheet in October and left a December rate hike open.
Investors should anticipate a tighter policy as a key inflation gauge this week could confirm U.S. inflation is moving toward the Fed’s 2% target.
“KBWB focuses on large- and mid-cap banks, meanings there are no small-caps found among this bank ETF’s 24 holdings. Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Wells Fargo (NYSE: WFC) combine for nearly a quarter of KBWB’s roster,” reports InvestorPlace. “As has been seen with other bank ETFs, investors have recently been embracing KBWB. The ETF has seen inflows of nearly $41 million over the past three months, according to issuer data.”
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Deregulation could also help the financial sector improve their margins. President Donald Trump’s administration has shown its eagerness in cutting back the red tape and remove some of the post-financial crisis regulations that has stifled the industry.
The recently completed Federal Reserve stress tests were passed with flying colors by KBWB constituents. Improving earnings and sturdier balance sheets coupled with the stress test results are expected to give big banks the ability to further boost shareholder rewards, including buybacks and dividends.
KBWB has a trailing 12-month yield of just 1.4%, indicating plenty of room for the ETF’s components to safely raise dividends.
For more information on the banking sector, visit our financial category.