Investors have been paying more attention to the banking sector lately, given the improvement in its performance over the past year. The S&P Banks Select Industry Index has jumped 35.7% in the past year compared to the 26.1% rise of the larger S&P 500 index.
Several factors work in favor of space. The Federal Reserve has already started cutting its bond purchases, which it plans to complete by March of this year. The Fed is expected to start raising its key rate in March. The shift to tighter monetary policy will push yields higher, helping the financial sector. Indeed, rising rates will help boost profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a large part of bank income, is expected to be supported by the steepening of the yield curve and a modest increase in credit demand.
The Federal Reserve may take a more aggressive approach by raising interest rates. In this regard, the minutes of the December Fed meeting indicate that “participants generally noted that, given their individual outlook for the economy, labor market and inflation, it may become warranted to raise the federal funds rate sooner or at a faster rate. than the participants anticipated, ”as mentioned in a CNBC article.
The deployment of the coronavirus vaccine is gradually helping to control the spread of the epidemic around the world. The optimism surrounding the gradual reopening of global economies and growing demand paints a rosy picture for cyclical sectors. Progress in the deployment of the coronavirus vaccine presents a strong case, favoring a faster return to normal and an economic recovery. As the economy begins to run at full capacity, banks will be able to generate more business.
Additionally, the Emergency Use Clearance (EUA) for Pfizer Inc.’s (PFE) COVID-19 antiviral pill, PAXLOVID, allayed concerns about Omicron to some extent. Pfizer may begin shipping PAXLOVID to the United States on an immediate basis. In November, Pfizer announced that it had signed an agreement with the US government for the supply of 10 million courses of PAXLOVID. Delivery will be completed in 2022. The FDA had also given a nod to Merck’s antiviral pill for COVID-19.
Focus on banking ETFs
Against this background, let’s take a look at a few bank ETFs that can benefit from the current environment:
ETF SPDR S&P Regional Bank KRE
SPDR S&P Regional Banking ETF seeks to provide investment results which, before fees and expenses, generally correspond to the total return performance of the S&P Regional Banks Select Industry Index. It has $ 4.98 billion in assets under management and charges a 0.35% expense ratio (read: Bet on these 5 ETF domains for 2022).
ETF SPDR S&P Bank KBE
SPDR S&P Bank ETF seeks to provide investment results which, before fees and expenses, generally match the total return performance of the S&P Banks Select Industry Index. It has $ 3.14 billion in assets under management and charges 0.35% in expense ratio (read: Best ETF strategies for 2022).
Invesco KBW Bank ETF KBWB
The Invesco KBW Bank ETF is based on the KBW Nasdaq Bank Index. The Index is a modified market capitalization weighted index of companies primarily engaged in banking activities in the United States. It has $ 2.81 billion in assets under management and charges an expense ratio of 0.35% (read: 7 ETF forecasts for 2022).
IShares ETF American regional banks SAI
The iShares US Regional Banks ETF intends to track the investment results of an index composed of US equities from the regional banking sector. It has assets under management of $ 1.46 billion and charges an expense ratio of 0.41%.
First Trust Nasdaq Bank ETF FTXO
The First Trust Nasdaq Bank ETF seeks investment results that generally correspond to the price and performance, before fees and expenses, of the Nasdaq US Smart Banks Index. The Index is a modified factor-weighted index designed to provide exposure to US companies in the banking industry. It has assets under management of $ 305.2 million and charges an expense ratio of 0.60% (read: 5 booming ETFs in 2022).
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S&P Bank (KBE) SPDR ETF: ETF Research Reports
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
ETF Invesco KBW Bank (KBWB): ETF Research Reports
IShares U.S. Regional Banks (IAT) ETFs: ETF Research Reports
First Trust NASDAQ Bank ETFs (FTXO): ETF Research Reports
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