Top Banking Sector ETFs: Global, U.S., and Regional Options

An exchange-traded fund (ETF) is a marketable security that tracks indexes, index funds, commodities, or bonds, for example. Some also focus on the banking sector, and there are specific ETFs for different types of banks: global, major U.S., regional, and community.

Like mutual funds, ETFs are designed to reduce the risk for shareholders through the use of diversification. Index mutual funds and most ETFs are passively managed, seeking to match the fund's performance to a specific market index before fees and expenses.

However, in contrast to mutual funds, ETFs trade the same way as common stocks in stock exchanges. Unlike mutual funds, ETFs do not have the net asset value (NAV) calculated at the end of each day, but ETFs are more transparent than mutual funds. Mutual funds typically disclose their holdings quarterly, while ETFs do so daily.

Overview of Bank-Focused ETFs

Some of the ETFs that track the banking sector are financial ETFs with varying degrees of exposure to banks, while others are pure-play bank ETFs. A number of these ETFs focus on the international financial services sector, while others concentrate on U.S. banking segments such as major banks, regional banks or community banks.

Top Global Bank ETFs for Diversified Exposure

Common ETFs in the global financial sector include KBW Bank ETF and iShares Global Financials ETF.

As its name implies, KBW Bank ETF (KBWB) is a pure-play ETF for the banking industry. Before expenses, it attempts to closely match the returns and characteristics of the KBW Bank Index, an index of geographically diverse companies representing national money center banks and regional banking institutions.

Specifically, iShares Global Financials (IXG) seeks to track the investment results of an index made up of diversified global equities in the financial sector. This fund offers exposure to companies providing financial services to both commercial and retail customers, including banks, investment funds, and insurance firms.

Best U.S. Bank ETFs: A Closer Look

Common ETFs for tracking U.S. financial services companies include iShares U.S. Financials ETF (IYF), Financial Select Sector SPDR, ProShares Ultra Financials (UYG), and Vanguard Financials ETF (VFH).

Financial Select Sector SPDR (XLF) is home to 72 stocks. Holdings include major U.S. money center banks such as Wells Fargo, JPMorgan Chase, and Bank of America.

Exploring Regional and Community Bank ETFs

For investors seeking to avoid investments in big banks, there are ETFs that specialize in U.S. regional or community banks. For example, the SPDR Regional Banking ETF (KRE) follows the S&P Regional Banks Select Industry Index.

The iShares U.S. Regional Banks ETF (IAT) tracks the Dow Jones U.S. Select Regional Banks Index, giving investors exposure to around 35 stocks. This fund is concentrated on some of the big names in the regional banking industry, such as U.S. Bancorp, PNC and Truist.

The SPDR S&P Bank ETF (KBE) is not a pure regional bank ETF, but the majority of its assets are regional banks, with smaller allocations to thrift and mortgage finance companies, diversified banks and other diversified financials.

For its part, the First Trust NASDAQ ABA Community Bank Index (QABA) holds positions in about 139 small banks. Based on asset size, this ETF excludes the largest banks and thrifts. It also excludes companies with credit card or international specializations.

The Bottom Line

ETFs can be a strategic investment option for gaining exposure to the banking sector, encompassing a variety of financial services companies. Investors can choose from global financial sector ETFs like KBW Bank ETF (KBWB) and iShares Global Financials ETF (IXG) to gain broader exposure to the financial services industry.

U.S.-focused financial sector ETFs, like the iShares U.S. Financials ETF (IYF) and Financial Select Sector SPDR (XLF), provide more targeted exposure to domestic financial companies. Regional and community bank ETFs, such as SPDR Regional Banking ETF (KRE) and First Trust NASDAQ ABA Community Bank Index (QABA), allow focused investments in smaller, localized banks.