Interest rates will rise this year and it's only a matter of how many hikes there will be. Some analysts predict five, others believe that as many as seven could happen. Either way, there's a strong likelihood of significant interest rate increases coming in 2022 for the economy.
That can be problematic for many businesses, especially those carrying high debt loads. But one industry that could do particularly well if rates rise is banking. The big banks can profit from more of a spread as interest rates rise, allowing them to issue loans at higher percentages. That's where investing in the SPDR S&P Bank ETF (NYSE Arca: KBE) could be a good move this year.
The fund holds entirely financial services stocks and gives investors some excellent exposure to the top businesses in the sector. With around 100 holdings, it isn't overly dependent on any one stock – its top holdings account for no more than 1.6% of its total weight. Some of the big names in the ETF include Wells Fargo & Company (NYSE:WFC), Citigroup (NYSE:C), and Bank of America (NYSE:BAC).
In the past six months, as fears of rising interest rates have grown, the S&P 500 has fallen by a little less than 1% but this ETF has risen by more than 8%. The S&P Bank ETF also yields just over 2.2%, giving investors a way to further boost their overall returns. Its expense ratio of 0.35% also is relatively low, making this an attractive place to park your money for at least this year.
