Roundhill targets leading US banks with first ‘BIG’ ETF

Mar 21st, 2023 | By | Category: Equities

Roundhill Investments has launched a new ETF providing focused exposure to the largest banks listed in the US.

Roundhill targets top US banks in first ‘BIG ETF’

The ETF offers focused exposure to six of the largest banks listed in the US.

The Roundhill Big Bank ETF (BIGB US) has been listed on Nasdaq with an expense ratio of 0.29%, coming to market with $25 million in initial assets.

The fund is the debut product within Roundhill’s new ‘BIG’ product suite that will comprise ETFs delivering concentrated exposure to the top leaders in a specific sector without any “filler holdings”.

BIGB is actively managed, utilizing swap agreements and forward contracts to deliver equally weighted long exposure to major US banks that have been selected by Roundhill based on market capitalization, trading volumes, and sector relevance. The ETF currently provides exposure to six banks: Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, JP Morgan, and Wells Fargo.

The ETF rebalances to equal weights on a quarterly basis, while Roundhill re-evaluates the suitability of portfolio constituents annually.

The new launch comes amid trouble in the global financial system following the collapse of two US mid-size banks, Silicon Valley Bank and Signature Bank, over the past two weeks. US regulators have moved swiftly to contain the crisis from spreading wider by backing customer deposits and providing loans to shore up troubled banks’ balance sheets.

The equities of smaller, regional banks have suffered the most over the past two weeks and continue to exhibit notably elevated volatility, however, larger financial firms have also been pulled down by the turmoil.

Roundhill believes that the sell-off may be presenting an opportunity for investors to consider a focused allocation to larger banks. The firm notes that all six ETF constituents are Global Systemically Important Banks (GSIBs) which are statutorily required to carry higher capital ratios than non-GSIBs, making them a far safer investment when there is stress in the financial system.

These large institutions also benefit from their diversity of operations, superior technologies, and sheer size and importance, while many also offer attractive dividend yields of up to 4.5%.

Dave Mazza, Chief Strategy Officer at Roundhill, commented: “In the wake of banking failures at Silicon Valley Bank, Signature Bank of New York, and Silvergate, individuals and institutions alike are migrating banking relationships to the institutions deemed too big to fail. BIGB allows investors to achieve exposure to these money center banks without the potential exposure to smaller financial services companies such as regional banks, brokerages, and insurance companies found in existing financial ETFs.”

According to Roundhill’s website, the firm will be rolling out three additional BIG ETFs in the near future focusing on the largest companies within the airlines, technology, and defense industries, while filings with the SEC indicate a further two funds based on the oil and railroad industries are also in the pipeline.

Mazza added: “Recent market developments have reinforced what we have been hearing from investors for years about the challenges of existing sector ETFs. Roundhill’s BIG ETFs offer investors precise access to the most important companies in specific economic sectors. Our new BIG ETFs empower investors to make pinpoint decisions without worrying about the dilutive exposure found in many sector ETFs today, while also potentially mitigating single stock risk.”

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