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Make Money in Recovering Bank Stocks the Easy Way

Selena Maranjian
December 21, 2011

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the banking industry to thrive over the long run as companies improve their credit quality and find ways to remain profitable amid new regulations, the SPDR KBW Bank ETF (NYSE: KBE  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The banking ETF's expense ratio -- its annual fee -- is a relatively low 0.35%.

This ETF has performed poorly over the past five years, due largely to the credit crisis and recession. But healthy beaten-down banks are likely to spring back to life. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 16%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Few of this ETF's components had strong returns over the past year. US Bancorp (NYSE: USB  ) gained just 1% over the past year, but that's great, compared to the ETF, which sank 23%. The company has been posting growing revenue and strong profit growth. It has a solid reputation and remained profitable during the financial crisis, paying back its TARP money quickly.