The equity markets in the have recovered strongly so far this year. The S&P 500 is up about 10% YTD. But not all sectors are performing well. For instance, tech stocks have had a great run but the banking sector is having one of the worst years since the Global Financial Crisis (GFC) of 2008-2009. Among the banks, the regionals have been hit pretty hard with the KBW Nasdaq Regional Banking Index plunging by about 28% YTD. The regional bank ETF SPDR S&P Regional Banking ETF (KRE) for example is down even more with a decline of 33%. This ETF tries to track the return of the  S&P^® Regional Banks Select Industry Index.

Many of the individual banks are down deep in the red. Below are the YTD returns of a few banks:

• US Bancorp (USB): -32.55%
• Fifth Third Bancorp (FITB): -23.10%
• Glacier Bancorp, Inc (GBCI): -42.0%
• Huntington Bancshares Incorporated (HBAN): -28.0%
• KeyCorp (KEY): -44.0%

Have foreign stocks performed better or held up relatively well compared to the poor performance of US bank stocks?

The following table provides the answer. It shows the year-to-return of foreign banks trading on the US exchanges:

Some observations:

• The best performing foreign bank YTS is HSBC (HSBC) and the worst performer is Credit Suisse (CS). With the acquisition by UBS, eventually CS will disappear.
• The second worst foreign bank stock YTD is Bancolombia (CIB) of Colombia. At current prices the annual dividend yield is a juicy 10.44%.
• Due to its high exposure to the US markets, TD is the only Canadian bank that is in the negative territory.
• Bank of N.T. Butterfield & Son Limited (NTB) of Bermuda is not well known among investors and may be worth a look.
• ING Group N.V. (ING) is a long way from its previous peak but has stabilized and continuing earnings improvements and buybacks should help drive the price higher in the future.

Note: The returns noted above are excluding dividends

Source: BNY Mellon & Google Finance

Disclosure: Long BCH, CIB, GBCI, ING, ITCL, ITUB, BBD, BBVA, SAN, BNS, BMO, RY, CM and TD

Bonds are an important asset class to own in a diversified portfolio. Bonds offer many benefits such as providing a stable income, relatively better safety with high-quality bonds, preservation of capital, etc. Another important point to note about bonds is that they tend to cushion a portfolio during adverse equity markets. To put it in a different way, traditionally when stocks decline bonds tend to go up and vice versa. So depending on an investor’s long-term goals and risk tolerance, a small amount of bonds can be added to a portfolio consisting of various asset classes.

I came across an article in the journal last month that noted bonds also fell in 2022 when equities plunged. It was the first time this happened. From the piece:

Bonds helped offset some of the pain of the previous market crises, including the bursting of the dot-com bubble in 2000, the global financial crisis of 2008 and the short-lived market panic brought by the onset of the Covid-19 pandemic.

That didn’t happen in 2022. An index that largely holds Treasurys, highly rated corporate bonds and mortgage-backed securities fell 13%, posting its worst year on record, while the S&P 500 declined 18%.

Click to enlarge

Source: The 60-40 Investment Strategy Is Back After Tanking Last Year, WSJ

Related ETFs:

• SPDR S&P 500 ETF (SPY)
• Vanguard Total Bond Market ETF (BND)
• iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

Disclosure: No positions

Money market funds have become one of the attractive asset classes to own this year. Some of these funds are yielding between 4% to 5%. The extreme volatility in the equity markets and investors’ looking for decent yields are helping these funds gain huge inflows. Though these funds are not FDIC-insured and have risks investors are still pouring billions into them.

With that brief intro, let’s take a quick look at the top two money market funds.

The top two finds based on year-to-date inflows are the Vanguard Federal Money Market Fund (VMFXX) and the Schwab Value Advantage Money Fund-Investor Shares (SWVXX) according to a recent journal article.

1.Vanguard Federal Money Market Fund (VMFXX):

This fund has an asset base of over $240 billion and currently has a 5-day SEC yield of 5.02%. The expense ratio is 0.11%. However the fund has a minimum investment of $3,000.00. Dividends are paid out monthly.

2.Schwab Value Advantage Money Fund-Investor Shares (SWVXX)

SWVXX has total net assets of over $120.0 billion. The expense ratio is a bit high at 0.35%. The current 7-day yield is 4.90%. Similar to the Vanguard fund, this fund also pays dividends monthly.

Source: What Investors Should Know About Money-Market Funds and CDs

Disclosure: Long SWVXX