Megaphone icon ETF Database is now VettaFi. Read More >
ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • Entrepreneur ETF
    • Equity ETF
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Future ETFs
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Modern Alpha
    • Multi-Asset
    • Multi-Factor
    • Nasdaq Investment Intelligence
    • Portfolio Strategies
    • Retirement Income
    • Smart Beta
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Videos & Podcasts
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Active ETF Channel
  2. Banks Passed the Fed’s Stress Test. Will Financial ETFs Do the Same?
Active ETF Channel
Share

Banks Passed the Fed's Stress Test. Will Financial ETFs Do the Same?

Tom LydonJun 28, 2021
2021-06-28

As was widely expected, major domestic banks passed the Federal Reserve’s most recent stress test, paving the way for the central bank to sign off on dividend increases and share repurchases.

Shareholder rewards, often one of the primary reasons to embrace the financial services sector, could be to the benefit of an array of exchange traded funds, including the actively managed Davis Select Financial ETF (DFNL). Although DFNL is a concentrated, focused fund, its status as an active product indicates it could be even more levered to bank dividend increases than traditional passive funds.

If nothing else, DFNL’s managers can overweight names with strong excess capital positions. In fact, they already are.

“We calculate that most banks are carrying roughly a midsingle percentage of market cap in excess capital, with Wells Fargo (WFC) and Capital One (COF) being the big standouts, carrying over 10% in excess each,” said Morningstar analyst Eric Compton in a recent note.

Capital One and Wells Fargo are DFNL’s largest and fourth-largest holdings, respectively, combining for nearly 17% of the fund’s weight.

DFNL 1 Year Performance

Waiting on Rewards

With banks sporting strong stress capital buffers (SCBs), shareholder rewards could be unleashed in significant fashion as soon as next month. Morningstar forecasts “mid-single-digit percentage growth” for dividends, while buybacks could be even more substantial.

“Because banks are now using the SCB framework, the types of capital return announcements could differ from past years and could be more vague, as banks aren’t seeking approval for specific plans but are instead allowed freedom in their capital returns as long as capital levels stay at appropriate levels,” adds Compton.

Not every DFNL component was among the 23 companies participating in the stress test. Not all DFNL holdings are domestic firms, and in addition to holding banks stocks, the fund is also allocated to diversified financial services firms and insurance providers.

In other words, DFNL delivers a much different view of this sector than the S&P 500 Financial Services Index. In fact, 10 DFNL components aren’t even members of that index. The difference is material, as the Davis fund is beating that benchmark by about 360 basis points year-to-date.

For more news, information, and strategy, visit the Active ETF Channel.


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
  • Mission Statement
  • Press
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © ETF Flows LLC
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X