Which Financial ETF is the Better Fit? Invesco KBW Bank ETF (KBWB) or iShares Regional Banks ETF (IAT)

Invesco KBW Bank ETF (KBWB +0.75%) provides diversified exposure across national and regional banks, whereas iShares U.S. Regional Banks ETF (IAT +1.20%) focuses exclusively on the regional banking sector.

Investors seeking exposure to the financial sector often choose between broad-based banking funds and those targeting specific niches. This comparison examines two popular options that differ in concentration and in the specific types of banking institutions included in their respective portfolios.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Invesco KBW Bank ETF is slightly more affordable with a 0.35% expense ratio. However, investors looking for income may prefer the iShares U.S. Regional Banks ETF, which currently offers a higher payout than its competitor.

Performance & risk comparison

What's inside

Invesco KBW Bank ETF focuses on the financial services sector (100%) and tracks 26 holdings. Its largest positions include JPMorgan Chase & Co (JPM +0.56%) at 8.10%, Wells Fargo & Co (WFC +2.21%) at 8.08%, and Morgan Stanley (MS -1.20%) at 7.74%. It was launched in 2011. Invesco KBW Bank ETF has paid $1.87 per share over the trailing 12 months, which, on its recent ~$87.6 share price, works out to a 2.1% yield.

iShares U.S. Regional Banks ETF also focuses on financial services (100%) but contains 30 holdings specifically in the regional bank sub-sector. Its largest positions include U.S. Bancorp (USB +1.53%) at 15.01%, PNC Financial Services Group (PNC +0.90%) at 14.77%, and Truist Financial (TFC +1.32%) at 9.51%. It was launched in 2006. iShares U.S. Regional Banks ETF has paid $1.64 per share over the trailing 12 months, which, on its recent ~$57.5 share price, works out to a 2.9% yield.

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Which looks like the better buy

To compare the Invesco KBW Bank ETF (KBWB) and the iShares U.S. Regional Banks ETF (IAT), investors should consider a few key factors. Let's have a look at them and see what that tells us about each fund.

To begin, there are differences in allocations between the two funds. KBWB focuses on major money-center banks and very large regional banks. IAT, by contrast, holds only shares of U.S. regional banks. What's more, the size of the funds themselves varies. KBWB has around $6.2 billion in AUM, while IAT has about $0.6 billion in AUM. While both funds exhibit decent liquidity, some investors may find it marginally easier to transact in KBWB shares given its greater AUM.

Two other important factors are historical performance and income potential. As for performance, KBWB has come out ahead over the last five years. Since 2021, KBWB has generated a total return of 43%, equating to a compound annual growth rate of 7.4%. IAT, meanwhile, has delivered a total return of 6%, with a CAGR of 1.3%. Both funds have underperformed the S&P 500 over this period. Turning to income potential, IAT does offer the more compelling choice for income-oriented investors, with a dividend yield of 2.9% versus 2.1% for KBWB.

One final factor to weigh is cost. Here, the gap is narrow. KBWB is slightly lower, with an expense ratio of 0.35%, while IAT has 0.38%.

In summary, even though IAT and KBWB are both financial sector ETFs, they differ in several key respects. KBWB leads on several important factors, such as cost and historical performance, while IAT has an edge on income potential. Nonetheless, some investors may favor KBWB overall, with its mix of large, money-center bank stocks and larger regional banks. However, for those seeking to own only regional banks, IAT is a fund to consider.