The latest 13F filing reveals that the legendary billionaire and philanthropist Warren Buffett increased his bet on banking stocks once again in the last quarter after doing so in the third quarter of 2018, suggesting that he is bullish on the prospects of most banks than ever (read: 4 Market-Beating Sector ETFs of January).
While Buffett trimmed his stake in Wells Fargo WFC, he added stakes in Bank of America BAC, U.S. Bancorp USB, JPMorgan Chase JPM and super-regional PNC Financial PNC. The move has made the billionaire a major shareholder in four of the five largest U.S. banks.
Buffett took advantage of the sharp downfall in financial stocks. This is especially true as the S&P 500 Financials Index dropped 14% in the fourth quarter — the worst period in more than seven years — making high-quality stocks super attractive. The flattening yield curve and global slowdown concerns took all the sheen away from the banking sector in the second half of last year. Now, this trend has reversed with a dovish Fed, resulting in a steepening yield curve and favoring bank stocks.
This is because banks seek to borrow money at short-term rates and lend at long-term rates. If short-term rates rise slower than the long-term rates, the banks would be able to earn more on lending and pay less on deposits. This would expand net margins and bolster banks’ profits. Additionally, banks are now more financially sound than a decade ago. Further, bank earnings are trending better than expected and loan growth has picked up, bolstering the outlook for the sector (read: Should You Buy Bank ETFs After Q4 Earnings?).
Investors seeking to emulate Buffett’s investing style should look at bank ETFs that hold some of the high-quality companies that either find a place in Buffett’s portfolio or are the type of companies Buffett would like to invest in.
SPDR S&P Regional Banking ETF KRE
With AUM of $2.8 billion, this fund offers exposure to 125 regional banks, with each holding less than 2.2% share. It follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. The fund trades in solid average daily volume of 8.8 million shares and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: BB&T to Buy SunTrust in Decade’s Biggest Deal: ETFs to Tap).
Invesco KBW Regional Banking ETF KBWR
This fund follows the KBW Regional Banking Index, holding 50 stocks in its basket, with each accounting for less than 4% share. It is a relatively less popular and less liquid option in the space, with AUM of $98.6 million and average daily volume of 22,000 shares. The fund charges 35 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a High risk.
iShares U.S. Regional Banks ETF IAT
This ETF offers exposure to 59 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. It is largely concentrated on the top two firms, USB and PNC, with a combined 24.3% of assets. Other firms hold no more than 7.03% share. The fund has amassed $586.6 million in its asset base while sees a good volume of 265,000 shares a day. It charges 43 bps in annual fees and trades in a good volume of 265,000 shares a day on average. IAT has a Zacks ETF Rank #3 with a High risk outlook.
SPDR S&P Bank ETF KBE
This fund offers equal-weight exposure to 85 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with 78.3% share while thrifts & mortgage finance, diversified banks, other diversified financial services, and asset management & custody banks take the remainder. It has amassed $3.1 billion in its asset base and trades in average daily volume of 3.1 million shares. It charges 35 bps in annual fees and carries a Zacks ETF Rank #3 with a High risk outlook (read: Best ETF Ideas for 2019).
Invesco KBW Bank ETF KBWB
This fund provides exposure to the 24 leading national money centers and regional banks or thrifts by tracking the KBW Bank Index. It is concentrated on the top five firms that make up for more than 7% share each. The fund has managed $676.8 million in its asset base and has 0.35% in expense ratio. It trades in volume of 376,000 shares per day on average and has a Zacks ETF Rank #3 with a High risk outlook.
First Trust Nasdaq Bank ETF FTXO
This fund follows the Nasdaq US Smart Banks Index, which measures the performance of U.S. companies within the banking industry. It holds 30 securities in its basket with each accounting no more than 8.1% share. The ETF has AUM of $182.7 million and trades in average daily volume of 621,000 shares. It charges 60 bps in annual fees and has a Zacks ETF Rank #3.
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