5 Top Performing Banking ETFs in 1H21

The banking sector has had an impressive run in 2021 so far after a tough 2020. The S&P Banks Select Industry Index has surged 24.1%, year to date, compared with the broader S&P 500 Index’s rally of 15%. Notably, improving prospects for the space amid the rebounding U.S. economy are gaining increased investor attention.

It is a well-known fact that an improving U.S. economy can continue to perk up demand for loans. Also, steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to have got support from the steepening of the yield curve and a modest rise in loan demand.

Moving on, the world’s largest economy is strongly controlling the coronavirus outbreak with accelerated coronavirus vaccine distribution. In fact, more than 60% of adult Americans have already taken the COVID-19 jab, per a CNBC article. Markedly, the Fed’s continued support with easy monetary policies, fiscal stimulus support and reopening of non-essential business are strengthening hopes of rapid recovery from the coronavirus-induced slump.

In another encouraging development, major banks have cleared 2021 stress tests conducted by the Federal Reserve. After clearing this year’s stress tests, major banks plan to reward shareholders with dividend hikes and bigger share-buyback authorizations, effective third-quarter 2021. The move signals that banks are capable of withstanding micro/macro-economic shocks, remain handily above the regulatory capital requirements and return more capital to shareholders. Thus, this development has further boosted investors’ confidence in the banking industry.

Furthermore, the central bank hinted at a sooner-than-expected interest rate hike in the June FOMC meeting. The officials pointed that there might be two rate hikes by 2023-end. The Fed also noted that the U.S. economy will grow at a rate of 7% in 2021, up from the previous projection of 6.5%, in its latest Summary of Economic Projections.

Going by a CNBC article, Fed Chairman Jerome Powell has remained bullish on the economic recovery achieved so far from the pandemic-triggered slump. He also maintained that high inflation levels were temporary and will return to 2% over the long term, per the same article.

Banking ETFs Up More Than 28% YTD

Against this backdrop, let’s take a look at some banking ETFs that have gained more than 28%, so far in the year, and carry a Zacks ETF Rank #2 (Buy):

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Written By: Zacks Investment Research