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Amid a string of recent bank failures and bailouts in the U.S. and abroad, clients may be feeling as though it’s 2008-09 all over again. Of course, advisors don’t have crystal balls and it’s possible ripple effects from the falls of Silicon Valley Bank, Signature Bank of New York, and Silvergate spread.
On the other hand, this is likely to be one of those moments when the sturdiest financial institutions stand out. Think Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM), among others.
With that in mind, Tuesday’s debut of the Roundhill BIG Bank ETF (BIGB) on the NASDAQ could prove to be well-timed. BIGB’s mission is simple: Provide investors with concentrated exposure to largest, most liquid banks. The ETF can hold five to 10 big bank stocks and debuted with six holdings.
“Roundhill selects the Underlying Issuers based on market capitalization, trading volumes, and sector relevance, in an attempt to identify the largest and most liquid companies representative of the Bank and Capital Markets Industries,” according to the issuer.
Deep Dive on BIGB
At a time when the proverbial wheat is being separated from the proverbial chaff in the financial services sector, advisors may be more enthusiastic about allocating to the largest, steadiest banks while eschewing exposure to small fare due to the perception of elevated risk.
"In the wake of banking failures at Silicon Valley Bank, Signature Bank of New York, and Silvergate, individuals and institutions alike are migrating banking relationships to the institutions deemed too big to fail", said Dave Mazza, Chief Strategy Officer at Roundhill. "BIGB allows investors to achieve exposure to these money center banks without the potential exposure to smaller financial services companies such as regional banks, brokerages, and insurance companies found in existing financial ETFs."
BIGB debuted with six holdings. In order of weight as of March 31, those swaps on the following: Goldman Sachs, Morgan Stanley (NYSE: MS), JPMorgan Chase, Bank of America (NYSE: BAC), Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC).
BIGB will pursue an equal-weight strategy, rebalancing on a quarterly basis. The rookie ETF’s 0.29% annual fee, equivalent to $29 on a $10,000 investment, is fair among equal-weight sector funds.
Another Reason BIGB Could Be Useful
As advisors know, the financial services sector is a lynchpin of many value investing strategies – both active and passive. Following last week’s bloodletting in the space, some bank equities, including some BIGB components, look interesting valuation. Take the case of Goldman Sachs,
“Goldman Sachs’ stock is currently rated 4 stars and it trades at a 25% discount to our fair value. It does pay over a 3% dividend yield, which I do think is a little attractive in today’s environment. But when I think about Goldman Sachs, I really think about the composition of its revenue and how different it is from the banks,” observes Morningstar analyst Dave Sekera.
Recently, Morgan Stanley analyst Betsy Graseck estimated that JPMorgan could hit a market capitalization of $1 trillion by 2030, implying a more than doubling from its current market value of $399.34 billion. Obviously, that’d be a boon for committed BIGB investors.