Shares of top banks explode or approach buy points as talks intensify and the odds of higher interest rates next year increase.
Last month, the Fed said the reduction in asset purchases “may soon be warranted” and could be completed by the middle of next year. More and more Fed policymakers are also seeing the central bank’s policy interest rate rise in 2022, which would give the big banks more leeway to raise their lending rates, thereby increasing their profits.
This gives financial stocks a boost. Here are three exchange-traded funds that have JP Morgan (JPM), Bank of America (BAC) and other leading bank stocks.
Vanguard Financials ETF (VFH), with $ 11.2 billion in assets, is the largest of the trio. It tracks the MSCI US Investable Market (IMI) / Financials 25/50 Index, which includes large, medium and small US financial stocks. VFH will celebrate its 18th birthday in January.
Diversified banks represented the largest weighting in the sector as of August 31, with nearly 24% of assets. Regional banks then arrive at 14% and management and custody banks at 10%. Investment banking and brokerage and financial exchanges and data accounted for about 9% each, and multi-sector holdings and property and casualty insurance 7% each. Smaller positions in other financial sectors made up the remainder.
JPMorgan tops most important bank stocks
Top 10 titles through the end of August included JPMorgan, Berkshire Hathaway (BRKB), Bank of America, Wells fargo (WFC) and Citigroup (This Goldman Sachs (GS). Together, the top 10 totaled 42% of the portfolio of 396 stocks.
JPMorgan stock, up more than 30% this year, sits near the top of a buy range from an entry of 163.93 for a cup with handle. Berkshire Hathaway has gained over 20% this year and has been building a flat base for 22 weeks. Goldman, up nearly 50% year-to-date, is also shaping a flat base.
VFH is in the buy range from a buy point of 94.88 on a flat basis, according to MarketSmith chart analysis. It first broke through the entry in early August before retreating, but found support along the rising 10-week moving average. ETF charges 0.10%.
Next is the Invesco KBW Bank ETF (KBWB), which tracks the KBW Nasdaq Bank Index. The index is composed of national central monetary banks, regional banks and savings traded in the United States. KBWB will celebrate its 10th anniversary next month.
The top 10 stocks, which accounted for 60.5% of the 26-stock portfolio, include US Bancorp (USB), Bank of America, JPMorgan, Wells Fargo and Citibank. SVB Financial Group (SIVB) and Fifth Third Bancorp (FITB) are among the smallest banks, comparatively, in the top 10.
KBWB remains in the buy range from a 68.09 entry of a four-month-old cup with a clear handle at the end of last month. It charges an expense ratio of 0.35%.
Flirt with an escape
The Fidelity MSCI Financials ETF (FNCL) is the youngest of the three with an inception date of October 21, 2013. The $ 1.8 billion fund tracks the MSCI USA IMI Financials Index.
Its top 10 holdings include JPMorgan, Berkshire Hathaway, Bank of America, Wells Fargo, Citigroup, Morgan stanley (MS) and Goldman Sachs. The top 10 represented 41.5% of the 389 stock portfolio as of September 30.
FNCL broke a buy point of 55.85 on a six-week flat basis on Thursday, before falling back to close below the entry. He charges 0.08%.
Keep in mind that with the market correcting all purchases are very risky. But initiating very small positions in some of the best performing industrial groups remains a viable option. And ETFs hold a basket of stocks, which reduces risk.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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