Size Matters with this Big Bank ETF

In last week’s issue of The Deep Woods, I, along with my special market insider who helps me put together the Eagle Eye Opener, began to speculate whether the regional banking crisis that brought Silicon Valley Bank and Signature Bank to their financial knees had ended.

Unfortunately, as you know from reading about “The Trouble With Banking Tribbles,” the banking crisis is far from over. Indeed, JP Morgan Chase CEO Jamie Dimon recently said as much in a very long annual message to shareholders.

“The market’s odds of a recession have increased,” Dimon wrote. “And while this is nothing like 2008, it is not clear when this current crisis will end. It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative.”

At the same time, though, the banking crisis doesn’t mean that we should flee the sector for safer and calmer waters. Indeed, there is always the potential for a future rebound somewhere.

For instance, the Roundhill Big Bank ETF (NASDAQ: BIGB) is an exchange-traded fund (ETF) that tracks the performance of the largest and most liquid U.S.-listed banks and capital markets issuers. The fund primarily uses swaps and forwards to provide exposure to them.

The fund’s managers select six to ten large, liquid, financial service firms that are “globally systemically important banks” (GSIBs). In the wake of the 2008 financial crisis, these banks are required, by law, to carry higher capital ratios than non-GSIB banks. The largest institutions are then identified based on market capitalization and trading volume. The stocks in the fund are equally weighted and rebalanced quarterly.

Although it does not always do so, the fund can also invest in U.S. Treasury securities, money market funds or other short-term instruments, as well as common stocks, American Depositary Receipts (ADRs), swaps and forward contracts.

The fund’s current portfolio includes JPMorgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC) and Citigroup (NYSE: C).

Since this ETF is so new, its track record and performance history are limited. For now, it is difficult to accurately assess its long-term potential and risks; however, the underlying holdings in the fund are, in fact, the biggest and most stalwart firms in the banking space. So, if you are a long-term bull on America and capitalism (and I am), then this basket of banks certainly offers the prospect of long-term capital appreciation.

The fund’s expense ratio is 0.29%, and it has $4.1 million in assets under management.

Of course, interested investors should carefully consider the potential risks and drawbacks before making any investment decisions.

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.