KBW Bank Index

What Is the KBW Bank Index?

The KBW Bank Index is a benchmark stock index of the banking sector. The index was first developed by the investment bank Keefe, Bruyette, and Woods (KBW), which works in the financial sector. It incorporates a weighting of 24 banking stocks chose as indicators of this industry group.

The stocks address large U.S. national money center banks, regional banks, and thrift institutions.

Understanding the KBW Bank Index

The KBW index uses a float-adjusted changed market capitalization-weighting method. The index components are picked by a committee of five people (4 KBW employees and one full-time employee of the Nasdaq exchange) that meet quarterly. Their selection criteria look to repeat certain market, industry, and geographic sections, by choosing from among the largest banking firms that meet the initial qualification criteria.

The index centers explicitly around banking and de-accentuates components that would be intensely protection related or investment-situated. For instance, Goldman Sachs, Metlife, and Berkshire Hathaway are outstandingly missing from its components, however these stocks are listed in the holdings of other comparable indexes.

Index Components

As of May 2021, the individual index components included:

Bank of NY Mellon (BK)
Bank of America (BAC)
Capital One Financial (COF)
Citigroup (C)
Residents Financial Group (CFG)
Comerica (CMA)
Fifth Third Bank (FITB)
First Horizon (FHN)
First Republic Bank (FRC)
Huntington Bancshares (HBAN)
JP Morgan Chase (JPM)
Keycorp (KEY)
M&T Bank (MTB)
Northern Trust (NTRS)
PNC Financial Services (PNC)
Individuals' United Financial (PBCT)
Districts Financial (RF)
Signature Bank (SBNY)
State Street (STT)
SVB Financial Group (SIVB)
Truist Financial Corp (TFC)
US Bancorp (USB)
Wells Fargo and Co (WFC)
Zion's Bancorp (ZION)

History of the KBW Bank Index

The index started its life at the Philadelphia Stock Exchange, which was subsequently purchased by Nasdaq. Since the index originated as part of the Philadelphia Stock Exchange, a few sellers actually allude to it as the PHLX/KBW Bank Index. The index was set to an initial index value of 250 on October 21, 1991. Options started trading on September 21, 1992. Calculation and scattering of the index's value happen once each second all through the normal trading day under the symbol BKX.

For a long time, the KBW Bank Index was the standard benchmark index for the banking sector in the stock market. It was likewise the best way to trade the broad banking sector because of the options market before the coming and proliferation of exchange-traded funds (ETFs). With such countless different decisions accessible to address the sector, the index is currently at this point not the main representative for banks.

There are currently ETF adaptations of the index accessible, including the Invesco KBW Bank ETF with the trading symbol KBWB. These ETFs endeavor to follow the underlying index by claiming a similar mix of component stocks, be that as it may, no ETF can accomplish perfect correlation due to the asset's need to accommodate any redemption of shares.

According to Nasdaq, the Index Committee endeavors to keep turnover at the very least. The Committee assesses the composition of the index on a quarterly basis in March, June, September, and December. Interim assessments might happen after extraordinary conditions. These conditions incorporate stock splits and certain side projects and rights issuances, and critical legal issues or a company's bankruptcy.

Large Banks versus Regional Banks

Investors ought to comprehend that while the KBW Bank Index is a decent representation of the banking sector, it just spotlights on large-capitalization stocks. It does exclude regional banks, which are commonly to some degree more modest. Consequently, investors ought to examine both the KBW Bank Index and a representative of the next tier in the banking sector. There is an ETF that tracks the regional index, the Invesco KBW Regional Bank Index under the ticker KBWR.

Features

KBW Bank Index incorporates 24 stocks chose from the largest regional and cross country banking companies.
KBW Bank Index tracks the stock prices of unmistakable banking companies trying to be a bellwether for banking industry watchers.
KBW Bank Index has been around starting around 1991.