Getting the Most ‘Bank’ for Your Buck with This ETF

For investors looking to get the most “bank” for their buck, one such banking exchange-traded fund (ETF) may be an interesting play.

While banking sector stocks have sunk to depths not seen since the 2008 financial crisis, it has been abundantly clear that the Fed is willing to move mountains to resolve this problem… for better or worse.

Moreover, while it cannot be negated that the sector- and industry-related ETFs lost a good chunk of their sparkle, there is still a glimmer of hope here: market volatility. With such price dips, this may be the time to get in on a sector sure to recover.

So, for bargain-loving investors, the Invesco KBW Bank ETF (KBWB) could hold some interest. Created in 2011, KBWB is based on the KBW Nasdaq Bank Index, and the fund generally invests at least 90% of its total assets in the securities that comprise the Index. KBWB provides investors with good exposure to the overarching U.S. banking market. Its portfolio is made up of national money center banks, regional banks and thrift institutions.

Given the fund’s narrow exposure to the banking sector, it may be of more interest to investors looking for a more short-term play, but as it holds both large- and small-cap stocks, both with significant weight, it can also be complimentary as a long-term play, as well.

However, investors should note that the fund has only 25 holdings and dedicates a decent chunk of its total assets to the top five, which does add a bit of company-specific risk. KBWB’s top five holdings include JPMorgan Chase & Co. (JPM), 9.50%; Citigroup Inc. (C), 9.42%; Bank of America Corp. (BAC), 8.66%; Wells Fargo & Co. (WFC), 8.40% and U.S. Bancorp. (USB), 7.87%.

Courtesy of stockcharts.com.

Now, while the chart above shows an unavoidable plummet, that should be of no surprise for any bank-related stock or ETF at this time. However, for the bargain-savvy and brave, it is wise to look at this ETF’s past strength, which was rather impressive, until the fatal March blow.

KBWB’s 200-day moving average was as steady as could be, and while its 50-day moving average saw a small decline, it simply went from its peak to slightly less than its peak. Now, looking at the light at the end of a perhaps very long tunnel, KBWB is already starting its recovery journey, seeing a recovery in share price already, and the month isn’t even over.

Further, KBW Bank has strong fundamentals, with over $2 billion in net assets and $1.29 billion in assets under management. It even rewards investors with a dividend yield of 3.80% and paid $1.57 per share in the past year. The dividend is paid every three months and its most recent ex-dividend date was March 20.

So, KBWB may scratch the itch for investors looking to get the most “bank” for their buck. With strong fundamentals, large- and small-cap stocks and a rewarding dividend, the current banking sector volatility may be the time to expand into this corner of the market at a deep discount.

However, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

And, yes, there will always be the naysayers, but as Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.”

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.