Bank-related ETF to keep track of in August (+38% in 1 year)

In 2024, global net interest income in the banking market is estimated to reach $8.52 trillion, with traditional banks continuing to dominate the sector. Furthermore, by 2029, the market volume is expected to increase further, reaching $10.83 trillion thanks to a compound annual growth rate (CAGR) of 4.92%.

In this context, bank-related ETFs (Exchange-Traded Funds) have played a crucial role for investors seeking to capitalize on financial market dynamics. Let’s see the sector outlook and the best ETF to keep under the lens in the next month.

The overview of the banking market

The global banking sector is in an unprecedented transformation, fueled by a number of macroeconomic and technological factors that are redefining the financial services landscape. Looking ahead, the sector is set to benefit from a combination of trends favorable that will strengthen its growth and profitability.

• First, the global economic expansion, albeit with some geopolitical uncertainties, creates a favorable context for the growth of the banking sector. The forecast for net interest income to increase to $8.52 trillion in 2024, with a further increase to $10.83 trillion by 2029, reflects sustained demand for banking services in both retail and commercial banking. Traditional banks, which dominate the market with an estimated volume of $7.03 trillion in 2024, will continue to play a key role, although they will have to compete with new fintech players.

• digitalization and the adoption of innovative technologies represent another driving force for the sector. Banks are investing heavily in technologies such as artificial intelligence, machine learning, and blockchain to improve operational efficiency, reduce costs, and offer personalized services to customers. These investments not only increase banks’ competitiveness but also create new growth opportunities through product innovation and expansion into emerging markets.

• Additionally, banking regulation is evolving to address cybersecurity and data protection challenges. Banks that can effectively comply with regulations and implement robust security measures will be better positioned to earn customer trust and reduce operational risks. The growing attention to sustainability and ESG (environmental, social, and governance) criteria is also pushing banks to develop more responsible and transparent practices, attract sustainable investments, and improve reputation.

Finally, China emerges as a crucial market for the banking sector, with a projected net interest income of $4.332 billion in 2024. The country’s robust economic growth and rising demand for financial services offer international banks significant expansion opportunities.

iShares EURO STOXX Banks 30-15 UCITS ETF (DE)

Among the ETFs that have performed best in the banking sector over the last year, the iShares EURO STOXX Banks 30-15 UCITS ETF (DE) stands out. This ETF replicates the EURO STOXX Banks 30-15 Index, which represents the banking sector of the Eurozone. The ETF was launched on 25 April 2001 and has assets under management of approximately €906 million. With a total expense ratio (TER) of 0.52% per annum, it offers investors an opportunity for exposure to the European banking sector.

The ETF uses total physical replication, purchasing all components of the underlying index, and pays dividends at least once a year. The ETF’s top holdings include banking giants such as Banco Santander SA, BNP Paribas SA, and UniCredit SpA. The top 10 holdings represent 75.72% of the ETF total, with significant exposure to Spain, Italy, and France.

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Performance and yield

The iShares EURO STOXX Banks 30-15 UCITS ETF (DE) has seen impressive performance over the past year. The one-year return was +38.79%, while the three-year return reached 83.66%. This performance was supported by the post-pandemic economic recovery and favorable monetary policies that stimulated the banking sector.

Risk analysis

Investing in banking sector ETFs involves a certain degree of risk, as the sector is highly sensitive to economic conditions and regulatory policies. The one-year volatility of the iShares EURO STOXX Banks 30-15 UCITS ETF (DE) was 15.95%, with a three-year volatility of 25.36% and a five-year volatility of 31.46%. The maximum one-year drawdown was -9.04%, while the maximum five-year drawdown reached -51.81%.

Dividend Yield

One of the attractive aspects of the iShares EURO STOXX Banks 30-15 UCITS ETF (DE) is the dividend yield. The ETF has offered a current dividend yield of 3.85%, with a historical dividend yield that has fluctuated over the past few years. In 2023, the dividend yield was 4.95%, while in 2022 it was 6.52%.

Conclusions

The banking sector continues to represent a key component of the global economy, with significant growth expected in the coming years. ETFs, such as the iShares EURO STOXX Banks 30-15 UCITS ETF (DE), offer investors an efficient way to gain exposure to this sector, benefiting from the diversification and liquidity that characterize these instruments.

Despite the associated risks, the ETF has demonstrated strong performance over the past year, making it an attractive choice for investors looking to capitalize on the economic recovery and dynamics of the European banking sector. However, investors should carefully consider their risk profile and investment objectives before engaging in these instruments.

Original article published on Money.it Italy 2024-07-15 19:45:00. Original title: ETF bancario da tenere monitorato nel mese di agosto (+38% in 1 anno)