European Banks or U.S. Lenders: Which Financial ETF Is the Better Buy Right Now, EUFN or KBE?
European banks have outperformed U.S. rivals by a wide margin over five years. Here is whether that advantage is worth the higher fee.
The iShares MSCI Europe Financials ETF (EUFN) and the State Street SPDR S&P Bank ETF (KBE) are two financial exchange-traded funds (ETFs) that investors are comparing. EUFN focuses on financial services in developed European markets, while KBE provides broad, equal-weighted exposure to the U.S. banking system.
EUFN offers higher yields, with a 12-month dividend payout of 3.9% on a recent share price of $42.19. In contrast, KBE has a lower 12-month yield of 2.1% on a share price of approximately $68.42. Historically, EUFN has provided a higher dividend payout, which may appeal to income-seeking investors.
EUFN's largest positions include HSBC Holdings (9.45%), Banco Santander (5.57%), and Allianz (5.31%). These holdings represent 99% of its assets, which are primarily in financial services, with small allocations to technology (1%) and industrials (1%). In contrast, KBE employs a modified equal-weighted strategy across 102 holdings, ensuring that no single bank dominates the portfolio. Its largest positions include Jackson Financial (1.18%), NMI Holdings (1.14%), and The Bancorp (1.14%).
European banks have shown strong performance over the past five years, nearly doubling the results of U.S. banks (KBE) during that period. This is due to cheaper starting valuations, improving profit margins, and increased investment in European defense and infrastructure. However, this outperformance came with lower volatility than KBE, making EUFN an attractive option for those seeking income and geographic diversification away from U.S. financial exposure.
KBE, on the other hand, is a more affordable option, charging a lower expense ratio of 0.35% compared to EUFN's 0.49%. It has also delivered less return, but provides lower cost and access to U.S. banking. Despite not being listed in the Motley Fool Stock Advisor's top 10 stocks for investors to buy right now, KBE remains a strong choice for those who believe in a domestic banking recovery and prefer familiar territory in U.S. lenders.
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