With Treasury yields rising as of late, it has banking ETF investors salivating. While big banks are certainly to benefit, surging bank ETFs can also help funds that focus on smaller banks like the regionally-focused Invesco KBW Regional Banking ETF (KBWR).

“U.S. banks have been on a tear in recent weeks given the rise in Treasury yields,” a Zacks Investment Research article published on Nasdaq noted. “The 10-year Treasury yields hit the highest level since early June, leading to a steepening of the yield curve. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve will earn more on lending and pay less on deposits, thereby leading to a wider spread. This will expand net margins and increase banks’ profits.”

“Moreover, the rounds of upbeat data instilled confidence in the economy, thereby leading to a spike in the banking sector,” the article added. “This is because an improving economy will buoy demand for loans and all types of banking services. In particular, Americans grew optimistic about the economy and are spending higher since the coronavirus pandemic began. The housing market is booming with rock-bottom mortgage rates and higher demand for homes.”

KBWR seeks to track the investment results (before fees and expenses) of the KBW Nasdaq Regional Banking Index (the “underlying index”). The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. The underlying index is a modified-market capitalization-weighted index comprised of companies primarily engaged in U.S. regional banking activities, as determined by the index provider. The underlying index is designed to track the performance of U.S. regional banking and thrift companies that are publicly-traded in the U.S.

KBWB Chart

“It is a relatively less-popular and less-liquid option in the space, with AUM of $29.5 million and an average daily volume of 6,000 shares. It charges 35 bps in fees per year from investors,” the article added.

ETF investors who want to stick with big banks can still go with the Invesco KBW Bank ETF (KBWB). The fund seeks to track the investment results of the KBW Nasdaq Bank Index.

The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. The underlying index is a modified-market capitalization-weighted index of companies primarily engaged in U.S. banking activities, as determined by the index provider. The underlying index is designed to track the performance of large national U.S. money centers, regional banks, and thrift institutions that are publicly traded in the U.S.

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