3 ETFs Focused on the US Banking Sector
US banks are among the strongest segments of the entire stock market this year. Successful Fed stress tests, a progressing deregulation wave, and renewed investor interest in value stocks are creating an environment where banking ETFs are significantly outperforming broader indices. The three following funds, however, offer three completely different ways to bet on this trend. Which one makes the most sense for your portfolio?
Key points
US banks reported a combined profit of $80.5 billion for the first quarter of 2026, all large institutions passed the Fed's June stress tests, and many subsequently increased dividends.
The largest of the funds holds banks at just under 28% of its portfolio, with the rest made up of payment giants, insurers, and Berkshire Hathaway. That is precisely why it is only adding about 3% this year.
The equal-weighted fund focused on regional banks is the sector's main star with year-to-date returns of around 17%, as it benefits the most from the deregulation agenda and speculation about a consolidation wave.
The middle path in the form of equal-weighted exposure to the entire banking segment offers the lowest concentration, a valuation around fourteen times earnings, and paradoxically the highest total return of the trio over the last 12 months, over 27% including dividends.
A common risk remains the sector's cyclicality. The purer and more concentrated the banking exposure, the stronger this year's growth, but also the deeper the declines when sentiment turns, as 2023 showed.
The banking sector has undergone a remarkable transformation over the last three years. Back in 2023, investor confidence was shaken by a regional banking crisis that, within a few weeks, wiped out Silicon Valley Bank, Signature Bank, and First Republic, sending bank stock prices to multi-year lows. The market then asked whether this was a harbinger of a systemic crisis similar to 2008.
In 2026, the situation is diametrically different. US banks reported a combined profit of $80.5 billion for the first quarter of this year, representing a year-on-year increase of 3.6%, domestic deposits are growing again, and all large institutions passed the Federal Reserve's June stress tests. Moreover, many announced dividend increases immediately after the results were published.
Added to this is the factor the market has perhaps been valuing the most in recent months, and that is deregulation. US banking regulators are currently finalizing adjustments to capital rules based on the Basel framework, and the House of Representatives approved laws in May that reduce the frequency of inspections and ease supervisory requirements for smaller, well-managed institutions. Regulators themselves argue before Congress that fewer rules will support economic activity without introducing undue risk to the system. In practice, this means lower compliance costs, freed-up capital, and potentially higher return on equity for banks. Critics, including Fed Governor Michael Barr, warn of the risks of too much rule relaxation, but the market is so far reading this agenda unequivocally positive.
Another thing supporting bank growth this year is capital rotation. After years of dominance by technology growth stocks, investors are moving to value stocks with stable cash flow and reasonable valuations. Banks, which even after a strong rally trade at low earnings multiples and offer solid dividend yields, are a natural target of this rotation. The result is that banking indices are among the best-performing segments of the entire US market this year.
For investors who do not want to pick individual bank stocks, sector ETFs represent the easiest way to gain exposure to this trend. However, the offering is broader than it might seem, and individual funds differ significantly in methodology, composition, and risk profile. In today's overview, we will look at the three best-known ones.
Finish the whole article on C
And you also unlock fair value and more tools
Black membership: analyses, screener, newsletters and unlimited StockBot.