Could a portfolio of the largest global banks provide reasonable returns? That’s what the BetaShares Global Banks ETF – Currency Hedged (ASX: BNKS) attempts to do. Here’s what you need to know about the BNKS ETF.
Exchange-traded funds, or ETFs, are investment funds that are listed on a securities exchange and provide exposure to a range of shares or assets with a single purchase. ETFs can be ‘managed funds’ or ‘index funds’, or in other words, active or passive.
The Australian Finance Podcast episode below explains ETFs, index funds and managed funds in more detail:
Getting To Know The Global Banks ETF
The BetaShares Global Banks ETF invests in banks around the globe and aims to track the performance of the Nasdaq Global ex-Australia Banks Hedged AUD Index.
The BNKS ETF is currency hedged to Australian dollars, meaning that some protection is offered against fluctuations in foreign exchange rates. Many of the banks the ETF invests in are based in the US (~37%). The ETF also invests in banks across Canada (~13%), Britain (~9%), China (~7%), Japan (~6%), and Brazil (~5%), as well as several other countries.
The BNKS ETF currently has 59 holdings, including JP Morgan Chase & Co. (NYSE: JPM), Bank of America Corp (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC) and Citigroup Inc (NYSE: C).
Over the last three years, the Global Banks ETF has returned 6.57% per year. The 12 months to 30th August 2019 were not so impressive, with the ETF falling 10.93%.
One of the main reasons to invest in banks is for the dividends, and the Banks ETF does pay semi-annual dividends. However, the ETF didn’t pay a dividend in July this year, leaving the 12-month distribution yield at only 1.4%.
Fees And Risks
The Global Banks ETF has a management fee of 0.47% per year and additional expenses estimated at 0.1% per year, resulting in total costs of 0.57%.
The ETF is obviously heavily exposed to the financial sector, so it would not be suitable as a core component of a portfolio due to the lack of diversification. While the Banks ETF is currency-hedged, exchange rate risk is still a consideration as hedging does not reduce the risk to zero.
The ETF is also relatively small with net assets of around $46.5 million, which is smaller than what I would generally look for.
Australians are, in general, already heavily exposed to the financial sector so this ETF would not be my first pick. Investors also typically invest in banks for the dividend yield, and the big four Australian banks offer much higher dividend yields than the Banks ETF, plus they offer franking credits.
If you’re chasing higher yields, our number one ETF pick in the free report below also beats that of the Banks ETF.
Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.