Bank ETFs Show Strong Performance; Here are the Best Ones We Track

We’re in the heart of third-quarter earnings season, with companies big and small reporting their latest numbers. The good news?

Over the last two weeks or so, several major banking corporations reported better-than-expected quarterly earnings. That solid bank performance, coupled with even better results from other major companies and hopes of corporate tax cuts, helped drive the Dow to an all-time high over 23,000 points last week.

Given the circumstances, the banking industry looks like an attractive investment option at the time. But which banks do you choose to invest your money in?

It can be difficult to pick a few and sleep well at night knowing that they won’t lose any of your hard-earned cash. So a good way to go about things is to explore bank ETFs. An ETF is a basket of securities that, unlike mutual funds, can be bought and sold quickly on the stock exchange. As with mutual funds, an ETF protects you against the potential volatility of investing in one stock through diversification.

I did some research to find ETFs that focus on bank stocks. Using the Weiss Ratings ETF Screener, I drilled down to the ones with most banks in their top holdings and of course, I only screened for “BUY” rated funds.

My screener results in the table below are sorted by year-to-date total returns. You can see that some are up 12%, 13%, even almost 17% so far in 2017. One-year total returns look even more impressive for these ETFs.

10 “BUY”-Rated Bank ETFs

Data Date: 10/19/2017

Nearly all of the ETFs on this list have one or more of the top 25 largest U.S. banks in their holdings. For some ETFs, these large banks represent a sizable chunk of the overall fund.

Take the Vanguard Financials Index Fund ETF Shares (VFH, Rated “B”) for example. It has 8.9% of its assets invested in JPMorgan Chase & Co. (JPM, Rated “A-”), 6.7% in Wells Fargo & Co (WFC, Rated “C+”) and 6.6% in Bank of America Corporation (BAC, Rated “B”). The top three holdings represent 22.2% of the fund, even as the list of all its investments is much larger and includes many more financial institutions.

To see them all, click on the “Top Holdings” tab located on the left side of the ETF page.

Vanguard Financials Index Fund ETF Shares Top 5 Holdings

Data Date: 10/19/2017

The bottom line is that banks are benefitting from strong earnings, proposed corporate tax cuts, and deregulation. ETFs with banks and other types of financial institutions could appreciate significantly in the coming months and maybe even years. Having them in your investment portfolio could therefore be a good idea.

Just be sure not to fall asleep behind your investment steering wheel as things can change over time, and you may need to switch gears later on. One way to stay ahead of the game is to add your banks and ETFs to your watchlist, so we can give you a heads up if their Weiss Ratings change

Think Safety,

Remi Lukosiunas

Money and Banking Edition, By Remi Lukosiunas, Financial Analyst Remi Lukosiunas, a Financial Analyst, joined Weiss Ratings in 2014 with a financial services background in internal audit and the credit union industry. Remi conducts banking, credit union, insurance and investment research. He has also written extensively on stocks and investing using ratings as a guide. Remi is a graduate of Florida State University with a degree in multinational business.