{"id":2981,"date":"2022-10-13T21:34:28","date_gmt":"2022-10-13T21:34:28","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=2981"},"modified":"2022-10-13T21:34:28","modified_gmt":"2022-10-13T21:34:28","slug":"bank-stocks-and-etfs-in-a-rising-rate-environment","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/bank-stocks-and-etfs-in-a-rising-rate-environment\/","title":{"rendered":"Bank Stocks and ETFs in a Rising-Rate Environment"},"content":{"rendered":"

According to Investopedia, the industry that is best equipped historically to deal with a rising interest-rate environment is banks.\u00a0 Generally, higher rates have led to wider spreads which in turn have led to higher profits for regional and money center banks.<\/span><\/p>\n

Therefore, we looked through Bank ETFs to see which ones our models found attractive now as measured by the ValuEngine Rating for 6-to-12 month ahead price performance. The answer was none of them.\u00a0 All of the Bank ETFs in our system currently rate 1 (least attractive) on the 1 to 5 scale.\u00a0 Therefore, individual stocks seemed like the better place to look for potential opportunities in this industry sector.<\/span><\/p>\n

All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on <\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
Free Two Week Trial to all 5,000 plus equities and ETFs covered by ValuEngine <\/b>HERE<\/b><\/a><\/h5>\n

Starting with VE Ratings, only two banks were rated as 4 (above average) and none were rated 5 (most attractive).\u00a0 These two were Bancfirst Corporation (<\/span>BANF<\/b>) and Silvergate Capital Corporation (<\/span>SI<\/b>).\u00a0 Looking deeper, we observed that the great preponderance of the bank stocks held were attractive on a relative basis as rated by our valuation model. Moreover, many of these stocks were rated 3 (neutral) to perform in line with the market. Therefore, in order to provide more comparisons, we include two banks rated 3 as most undervalued by our models: Signature Bank (<\/span>SBNY)<\/b> and State Street (<\/span>STT<\/b>).\u00a0 The two largest bank ETFs, SPDR-KBW Bank ETF (<\/span>KBE) <\/b>and Invesco-KBW Bank ETF (<\/span>KBWB) <\/b>are provided for comparison along with the SPDR S&P 500 Trust <\/span>(SPY)<\/b><\/p>\n

Brief summaries of each company stock and the two bank ETFs:<\/span><\/p>\n

BancFirst<\/b> (BANF)<\/b> is a bank holding company with its principal business in Oklahoma with two additional divisions in the Dallas-Fort Worth area. In addition to full service branch banking, <\/span>BANF <\/b>also maintains specialty product business units, including guaranteed small business lending, residential mortgage lending, trust services, securities brokerage, electronic banking and insurance.<\/span><\/p>\n

Silvergate Capital Corporation<\/b> (<\/span>SI)<\/b> is a holding company for Silvergate Bank, a provider of financial infrastructure solutions and services <\/span>for the digital currency industry<\/b>. The Company’s platform, known as the Silvergate Exchange Network, provides payments, lending, and funding solutions for an expanding class of digital currency companies and investors. The Bank provides financial services that include commercial banking, commercial and residential real estate lending, mortgage warehouse lending, and commercial business lending. The Bank also provides a full range of deposit products.<\/span><\/p>\n

Signature Bank<\/b> (<\/span>SBNY<\/b>) is a full-service commercial bank with over 38 private client offices located throughout the metropolitan New York area, as well as those in Connecticut, California and North Carolina. The Company operates through two segments: Commercial Banking and Specialty Finance.<\/span><\/p>\n

State Street<\/b> (<\/span>STT<\/b>), headquartered in Boston MA, provides a range of financial products and services to institutional investors across the world. It operates through two primary lines of business: Investment Servicing and Investment Management.\u00a0 Its Investment Servicing line of business performs custody and related value-added functions, such as providing institutional investors with clearing, settlement and payment services. Its Investment Management line of business, through State Street Global Advisors, provides a range of investment management strategies and products for its clients.\u00a0 The company also sponsors and manages the SPDRs brand of ETFs.\u00a0<\/span><\/p>\n

SPDR S&P Bank ETF<\/b> (<\/span>KBE<\/b>) tracks an equal-weighted index of about 100 US banking securities from the broadly based S&P Total Market (1500) Index.<\/span><\/p>\n

Invesco KBW Bank ETF <\/b>(<\/span>KBWB<\/b>)<\/span> tracks a modified market-cap-weighted index of about 30 US banking firms. An index committee determines the fund\u2019s holdings, while attempting to maintain a market-like exposure.<\/span><\/p>\n

The following table compares them from a top-level perspective.\u00a0 All data are as of October 10, 2022.<\/span><\/p>\n

Current ValuEngine reports on these stocks or ETFS can be viewed <\/b>HERE<\/b><\/a><\/h5>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
<\/td>\nBANF<\/b><\/td>\nSI<\/b><\/td>\nSBNY<\/b><\/td>\nSTT<\/b><\/td>\nKBE<\/b><\/td>\nKBWB<\/b><\/td>\nSPY<\/b><\/td>\n<\/tr>\n
Stock<\/span><\/td>\nBancfirst\u00a0<\/b><\/td>\nSilvergate Capital<\/b><\/td>\nSignature Bank<\/b><\/td>\nState Street<\/b><\/td>\nSPDR S&P Bank ETF<\/b><\/td>\nInvesco KBW Bank ETF<\/b><\/td>\nSPDR S&P 500 Trust<\/b><\/td>\n<\/tr>\n
ValuEngine Rating<\/span><\/td>\n4<\/b><\/td>\n4<\/b><\/td>\n3<\/b><\/td>\n3<\/b><\/td>\n1<\/b><\/td>\n1<\/b><\/td>\n3<\/b><\/td>\n<\/tr>\n
VE Forecast 3-mo. Price Return<\/span><\/td>\n3.8%<\/b><\/td>\n0.9%<\/span><\/td>\n-0.5%<\/span><\/td>\n+0.3%<\/span><\/td>\n+1.0%<\/span><\/td>\n+0.8%<\/span><\/td>\n2.4%<\/span><\/td>\n<\/tr>\n
VE Forecast 1-Yr. Return<\/span><\/td>\n+6.0%<\/span><\/td>\n+8.4%<\/b><\/td>\n-2.4%<\/span><\/td>\n-3.0%<\/span><\/td>\n-5.0%<\/span><\/td>\n-3.7%<\/span><\/td>\n-0.5%<\/span><\/td>\n<\/tr>\n
Historic 1 mo. Price Return<\/span><\/td>\n-8.9%<\/span><\/td>\n-20.0%<\/span><\/td>\n-12.8%<\/span><\/td>\n-10.9%<\/span><\/td>\n-3.5%<\/b><\/td>\n-8.3%<\/span><\/td>\n-8.8%<\/span><\/td>\n<\/tr>\n
Historic 3 mo. Price Return<\/span><\/td>\n-8.8%<\/span><\/td>\n+8.5%<\/b><\/td>\n-20.9%<\/span><\/td>\n-2.5%<\/span><\/td>\n-16.9%<\/span><\/td>\n-5.5%<\/span><\/td>\n-62.5%<\/span><\/td>\n<\/tr>\n
Historic 6 mo. Price Return<\/span><\/td>\n+9.7%<\/span><\/td>\n-46.1%<\/span><\/td>\n-43.3%<\/span><\/td>\n-26.0%<\/span><\/td>\n-7.9%<\/b><\/td>\n-17.9%<\/span><\/td>\n-19.1%<\/span><\/td>\n<\/tr>\n
Historic 1-Yr. Price Return\u00a0<\/span><\/td>\n+43.0%<\/b><\/td>\n-53.7%<\/span><\/td>\n-47.7%<\/span><\/td>\n-30.3%<\/span><\/td>\n-16.9%<\/span><\/td>\n-28.1%<\/span><\/td>\n-17.3%<\/span><\/td>\n<\/tr>\n
Historic 5-Yr Ann. Price Return<\/span><\/td>\n15.2%<\/span><\/td>\n62.3%<\/b><\/td>\n13.3%<\/span><\/td>\n-6.1%<\/span><\/td>\n2.7%<\/span><\/td>\n2.5%<\/span><\/td>\n9.4<\/span>%<\/b><\/td>\n<\/tr>\n
Volatility<\/b><\/td>\n31.9%<\/span><\/td>\n100.7%<\/span><\/td>\n44.7%<\/span><\/td>\n34.9%<\/span><\/td>\n29.6%<\/span><\/td>\n29.1%<\/span><\/td>\n17.7%<\/b><\/td>\n<\/tr>\n
Sharpe Ratio\u00a0<\/span><\/td>\n0.48<\/span><\/td>\n0.62<\/b><\/td>\n0.14<\/span><\/td>\n-0.17<\/span><\/td>\n0.09<\/span><\/td>\n0.08<\/span><\/td>\n0.53<\/span><\/td>\n<\/tr>\n
Beta<\/b><\/td>\n1.12<\/span><\/td>\n2.74<\/span><\/td>\n1.74<\/span><\/td>\n1.65<\/span><\/td>\n0.61<\/b><\/td>\n1.31<\/span><\/td>\n1.00<\/span><\/td>\n<\/tr>\n
Div. Yield<\/span><\/td>\n1.8%<\/span><\/td>\n0.0%<\/span><\/td>\n1.5%<\/span><\/td>\n4.1%<\/b><\/td>\n3.5%<\/span><\/td>\n3.3%<\/span><\/td>\n1.7%<\/span><\/td>\n<\/tr>\n
Earnings Growth<\/span><\/td>\n29.1%<\/span><\/td>\n131.0%<\/span><\/td>\n17.1%<\/span><\/td>\n10.4%<\/span><\/td>\nN\/A<\/span><\/td>\nN\/A<\/span><\/td>\n7.7%<\/span><\/td>\n<\/tr>\n
Trailing P\/E Ratio<\/span><\/td>\n17.6<\/span><\/td>\n17.9<\/span><\/td>\n29.9<\/span><\/td>\n8.5<\/span><\/td>\n8.1<\/b><\/td>\n9.5<\/span><\/td>\n18.8<\/span><\/td>\n<\/tr>\n
P\/S Ratio<\/span><\/td>\n5.8<\/span><\/td>\n9.2<\/span><\/td>\n3.6<\/span><\/td>\n1.9<\/b><\/td>\n7.2<\/span><\/td>\n4.1<\/span><\/td>\n2.0<\/span><\/td>\n<\/tr>\n
Valuation Decile<\/span><\/td>\n9th<\/span><\/td>\n3rd<\/span><\/td>\n2nd<\/span><\/td>\n3rd<\/span><\/td>\n3rd<\/span><\/td>\n1st<\/b><\/td>\n5th<\/span><\/td>\n<\/tr>\n
Earnings Surprise Decile<\/span><\/td>\n4th<\/span><\/td>\n2nd<\/b><\/td>\n4th<\/span><\/td>\n5th<\/span><\/td>\nN\/A<\/span><\/td>\nN\/A<\/span><\/td>\nN\/A<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
Current ValuEngine reports on these stocks or ETFS can be viewed <\/b>HERE<\/b><\/a><\/h5>\n

Observations<\/span><\/p>\n

    \n

  1. \n<\/span> Silvergate Capital (<\/span>SI<\/b>) is a very different type of bank that tends to move more in tune with the market for Bitcoin than the interest rate spread business that drives most commercial banks.\u00a0 Its growth and volatility numbers and the fact that it pays no dividends makes <\/span>SI <\/b>look much more like a growth stock than a conventional bank stock.\u00a0 With a <\/span>4 (attractive) <\/b>rating from ValuEngine, the highest historic Sharpe ratio despite huge volatility and great earnings growth and earning surprise histories, <\/span>SI <\/b>is worthy of investment consideration.\u00a0 That said, it should be considered an aggressive growth equity with respect to account goals and guidelines.<\/span><\/li>\n
  2. BancFirst (<\/span>BANF) <\/b>follows a more conventional regional banking business model.\u00a0 In terms of recent price return and earnings history, it has enjoyed better recent performance than the vast majority of its peers. It has more typical volatility numbers of a bank but with above-average profitability ratios and earnings growth rates. It also gets ValuEngine\u2019s second highest rating of <\/span>4 <\/b>(attractive).\u00a0\u00a0<\/span><\/li>\n
  3. Signature Bank (<\/span>SBNY<\/b>) is rated <\/span>3 <\/b>(neutral)<\/span> by ValuEngine.\u00a0 It is, however, in the top 17% of our universe for undervaluation.\u00a0 <\/span><\/li>\n
  4. 4. <\/span>State Street (<\/span>STT) <\/b>is rated <\/span>3 <\/b>(neutral)<\/span> by ValuEngine and rated in the top 20% of the ValuEngine Universe for undervaluation. It also has the highest dividend yield and lowest price-to-sales ratio in the group, comparing very favorably to its peers in the two bank ETFs.\u00a0 However, its business model is very different from those peers including <\/span>BANF<\/b> and <\/span>SBNY.\u00a0 <\/b>Virtually all of <\/span>STT<\/b>\u2019s income is fee-based.\u00a0 As such, investors looking for banks that might profit from higher-margin spread-writing in a rising-rate environment may wish to look elsewhere.<\/span><\/li>\n
  5. KBE <\/b>is far less concentrated than <\/span>KBWB <\/b>and is equally weighted with a different selection methodology.\u00a0 On an aggregate basis, however, most of the statistical data match up fairly evenly. Both receive a <\/span>1 (least attractive) <\/b>rating from ValuEngine indicating that our models don\u2019t consider them timely on a quantitative basis. \u00a0 However, as diversified tools to recommend and economic cycle strategy, both would serve well as reasonable proxies for the industry.\u00a0<\/span><\/li>\n<\/ol>\n
    Financial Advisory Services based on ValuEngine research available: \u00a0 <\/b>www.ValuEngineCapital.com<\/b><\/a><\/h5>\n

    Conclusions<\/b><\/p>\n

    Traditional banks have historically been able to increase margins on their lending businesses during rising rate environments.\u00a0 Since all US-listed bank ETFs in our system receive our worst rating for current investment, we looked beyond ETFs for individual candidates for consideration.\u00a0 From this perspective, <\/span>BANF <\/b>seems to be the standout as it is one of only two bank companies that gets an attractive rating of <\/span>4.\u00a0 <\/b>Beyond that, it stands to profit from higher lending margins and bank-related spread-writing activity. Although <\/span>SBNY <\/b>gets an average <\/span>3 <\/b>rating from ValuEngine, its above-average valuation and earnings growth metrics also make it worthy of consideration in implementing that strategy.\u00a0 Finally, since portfolios are generally less volatile than the individual stocks they hold and the two bank ETFs are no exception, <\/span>KBE<\/b> and <\/span>KBWB <\/b>may be the safest ways of implementing this market cycle strategy despite the fact that our models expect these ETFs to underperform our broad universe of ETFs.\u00a0 A final disclaimer, although this strategy has worked in historical rising rate environments, there is no guarantee it will work in the current one\u00a0\u00a0<\/span><\/p>\n

     <\/p>\n

    By Herbert Blank<\/b><\/h5>\n
    Senior Quantitative Analyst, ValuEngine Inc<\/b><\/h5>\n
    www.ValuEngine.com<\/b><\/a><\/h5>\n
    support@ValuEngine.com<\/b><\/h5>\n
    _______________________________________________<\/b><\/h5>\n
    All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 600 ETFs have been updated on <\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
    Financial Advisory Services based on ValuEngine research available through <\/b>ValuEngine Capital Management, LLC<\/b><\/a><\/h5>\n
    Free Two Week Trial to all 5,000 plus equities covered by ValuEngine <\/b>HERE<\/b><\/a><\/h5>\n
    Subscribers log in <\/b>HERE<\/b><\/a><\/h5>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    According to Investopedia, the industry that is best equipped historically to deal with a rising interest-rate environment is banks.\u00a0 Generally, higher rates have led to wider spreads which in turn have led to higher profits for regional and money center banks. Therefore, we looked through Bank ETFs to see which ones our models found attractive … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[74,2072,2066,1854,2065,2064,1760,1761,1719,1731,2070,2076,2071,1840,2068,2067,2073,2075,1726,2074,2069,28,1656,1659,63],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2981"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=2981"}],"version-history":[{"count":1,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2981\/revisions"}],"predecessor-version":[{"id":2982,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2981\/revisions\/2982"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=2981"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=2981"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=2981"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}