Invesco's Sleepy ETF Ended Up Ripping 33% While No One Was Watching

Core Viewpoint - The Invesco KBW Bank ETF (KBWB) achieved a 33% return in 2025, largely unnoticed amidst the focus on AI stocks, due to its equal-weight methodology that diversified investments across 24 major U.S. banks [1] Group 1: Investment Strategy - KBWB's equal-weight approach allowed for balanced exposure across 24 banks, preventing any single institution from dominating the portfolio, which contributed to its outperformance compared to market-cap weighted ETFs like KBE and SPY [2][5] - The equal-weight structure smoothed volatility and provided consistent returns by capturing gains from both megabanks and regional banks during the banking sector's rally [5] Group 2: Market Conditions - The steepening yield curve that began in late 2025 significantly enhanced bank profitability, with the spread widening from near-zero to over 70 basis points, leading to expanded profit margins for banks [3] - Analysts predict that the favorable environment for margin expansion will continue into 2026, with a focus on monitoring the 2-10 Treasury spread for potential signals regarding bank profitability [4] Group 3: Monitoring and Rebalancing - Investors are advised to check Invesco's monthly fact sheet for changes in holdings or weightings after quarterly rebalances, as the equal-weight structure can create buying opportunities in undervalued banks [6] - The quarterly rebalancing of KBWB is crucial for understanding which banks are being adjusted in the portfolio, providing insights into market dynamics [8] Group 4: Alternative Strategies - The First Trust Nasdaq Bank ETF (FTXO) employs a smart beta methodology that ranks banks based on liquidity and fundamental metrics, offering a different selection approach compared to KBWB [7]