Bank ETF Showdown: Invesco Crushes iShares
Lower concentration risk and deeper liquidity set these two financial sector ETFs apart.
By Erin Kennedy
Invesco KBW Bank ETF (KBWB 0.63%) offers broader exposure to major U.S. money center banks and national institutions, while iShares U.S. Regional Banks ETF (IAT +0.17%) provides a more concentrated bet on the domestic regional banking sector.
These ETFs allow investors to target the financial sector with differing levels of specificity. While both concentrate on bank equities, their underlying indexes select and weigh holdings differently, leading to variations in liquidity, price volatility, and total returns. With assets under management (AUM) exceeding $6 billion, KBWB offers deeper liquidity than the smaller IAT.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The Invesco fund is marginally more affordable than the iShares ETF, but that 3-basis-point difference is unlikely to sway an investor one way or another. However, IAT may appeal to income-oriented investors due to its higher trailing-12-month dividend yield of 2.8%.
Performance & risk comparison
What's inside
The Invesco ETF tracks the KBW Nasdaq Bank Index, which focuses on national money centers and regional establishments. Its portfolio of 26 holdings leans into diversified financial giants. Its largest positions include Morgan Stanley (MS 0.80%) at 9.49%, Goldman Sachs (GS 0.23%) at 8.99%, and Bank of America (BAC 0.47%) at 7.97%. Launched in 2011, it has a trailing-12-month dividend payout of $1.80 per share.
Conversely, the iShares fund offers more targeted exposure, strictly following U.S.-based stocks within the regional banking industry. It holds 31 companies, all within the financial services sector. Its largest positions include PNC Financial (PNC 0.47%) at 14.67%, U.S. Bancorp (USB +0.40%) at 14.17%, and Truist Financial (TFC +0.33%) at 9.6%. Launched in 2006, IAT has a trailing-12-month dividend payout of $1.62 per share.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
At a glance, Invesco's ETF may be more appealing to most investors. KBWB has posted higher returns recently and a lower five-year max drawdown. It pays a smaller dividend, but investors know a dividend yield moves inversely to a stock's price; when a stock goes up, the dividend will fall, all else equal. The Invesco ETF's one- and five-year returns could more than account for its slightly lower dividend yield. Finally, the fund is roughly 10 times the size of IAT, with much higher average trading volume and accordingly increased liquidity.
One final consideration is concentration risk. KBWB's top three holdings make up about 26% of the fund. Meanwhile, IAT's three largest positions account for about 38% of the portfolio. Some investors may not feel comfortable with that level of concentration in the iShares ETF, myself among them.