Evaluating Financial ETFs: Performance and Cost Give KBWB the Edge Over FTXO

Invesco KBW Bank ETF (NASDAQ:KBWB)offers a lower expense ratio and a more concentrated portfolio compared to First Trust Nasdaq Bank ETF (NASDAQ:FTXO), which provides broader diversification at a higher cost.

Investors seeking exposure to the U.S. financial backbone often turn to specialized bank ETFs to capture the performance of both large national money centers and smaller regional players. While the First Trust and Invesco funds both provide 100% exposure to financial services, they take distinct approaches to index construction, liquidity, and portfolio concentration. This matchup evaluates how their differing expense structures and risk profiles might influence a long-term investment strategy in the banking sector.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Invesco fund is the more affordable option, charging a 0.35% annual expense ratio compared to 0.6% for the First Trust fund. Additionally, KBWB provides a slightly higher payout with a dividend yield of 2.1% versus 1.9% for FTXO.

Performance & risk comparison

What's inside

The Invesco KBW Bank ETF tracks the KBW Nasdaq Bank Index, employing a modified market-capitalization weighting strategy that targets 26 of the most prominent U.S. money-center banks and regional institutions. Its largest positions include Wells Fargo & Co (NYSE:WFC) at 8.28%, JPMorgan Chase & Co (NYSE:JPM) at 8.09%, and The Goldman Sachs Group (NYSE:GS) at 7.41%. The fund was launched in 2011. Invesco KBW Bank ETF has paid $1.87 per share over the trailing 12 months, which, on its recent ~$87.56 share price, works out to a 2.1% yield.

The First Trust Nasdaq Bank ETF mirrors the Nasdaq U.S. Smart Banks Index, which uses a selection process to maintain a more diversified portfolio of 50 holdings. Its top positions include U.S. Bancorp (NYSE:USB) at 7.96%, Wells Fargo & Company at 7.85%, and JPMorgan Chase & Co. at 7.67%. Note that JPMorgan Chase & Co. and Wells Fargo & Company are shared top positions across both funds, though their specific portfolio weights differ. The fund was launched in 2016. First Trust Nasdaq Bank ETF has paid $0.77 per share over the trailing 12 months, which, on its recent ~$39.67 share price, works out to a 1.9% yield.

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Which looks like the better buy

When comparing the Invesco KBW Bank ETF (KBWB) and the First Trust Nasdaq Bank ETF (FTXO), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should examine each fund's strategy. KBWB employs a market-cap-weighted strategy. It holds around 30 stocks, all of which fall in the U.S. banking sector. FTXO, on the other hand, holds more stocks, about 50. It also uses a different weighting mechanism, employing a book-value approach rather than market cap.

Two other important factors are historical performance and income potential. As for returns, KBWB has come out on top in recent years. Since 2021, KBWB has generated a total return of 41%, equating to a compound annual growth rate (CAGR) of 7.1%. FTXO, by contrast, has delivered a total return of 29%, with a 5.2% CAGR.

One final factor to weigh is cost. Once again, KBWB holds an edge in this category. KBWB's annual expense ratio is 0.35%, while FTXO's is 0.60%. For context, a person who invests $10,000 in each fund should expect to pay $35 in annual fees for their KBWB shares but $60 per year for their FTXO shares.

In summary, KBWB and FTXO both hold financial stocks, but they differ in many key respects. KBWB has delivered higher total returns and is significantly more affordable in terms of its annual fees. Therefore, many investors will favor it in this head-to-head matchup.

JPMorgan Chase is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, JPMorgan Chase, and U.S. Bancorp. The Motley Fool has a disclosure policy.