Roundhill Debuts Mega Cap Banking ETF

The fund gets its exposure via swaps as well as direct ownership of securities.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

Today, Roundhill Investments rolled out the first of six exchange-traded funds that use derivatives to create a portfolio that mimics the performance of a basket of the largest and most liquid stocks in a particular category. The Roundhill BIG Bank ETF (BIGB) could be attractive to investors after the failure of two smaller banks, though the Credit Suisse failure could complicate the issue.  

BIGB has an expense ratio of 0.29% and lists on the Nasdaq stock market.  

“BIGB allows investors to achieve exposure to these money center banks without the potential exposure to smaller financial services companies such as regional banks, brokerages and insurance companies found in existing financial ETFs,” Roundhill Chief Strategy Officer Dave Mazza said in a press release.  

The fund is actively managed and covers companies in the banking and capital markets industry. It will typically hold a portfolio that represents the equal-weighted performance of five to 10 stocks in the targeted industry selected for their size and liquidity, and is rebalanced on a quarterly basis, according to the filing.  

Mazza explained in an interview with etf.com that getting exposure via swaps helps to keep the fund in line with diversification rules. The portfolio will include 20% direct ownership of individual equities, with the remainder of the exposure offered by the fund achieved via swaps.  

The fund’s portfolio holds swaps and equities representing six financial companies: Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo Co.  

BIG Developments 

Roundhill said in a press release that the other five funds covered in the original filing for BIGB will also launch in the coming weeks. Mazza told etf.com that although the funds have been in development for a while, the firm accelerated the launch of BIGB given the unfolding banking crisis. A prospectus filing from mid-November 2022 supports his statement.  

The other funds to be launched within the “BIG” series and their tickers are as follows: 

  • Roundhill BIG Tech ETF (BIGT) 
  • Roundhill BIG Airlines ETF (BIGA) 
  • Roundhill BIG Defense ETF (BIGD) 
  • Roundhill BIG Oil ETF (BIGO) 
  • Roundhill BIG Railroad ETF (BIGX) 

“Recent market developments have reinforced what we have been hearing from investors for years about the challenges of existing sector ETFs. Roundhill’s BIG ETFs offer investors precise access to the most important companies in specific economic sectors,” said Mazza in the statement. 

“Our new BIG ETFs empower investors to make pinpoint decisions without worrying about the dilutive exposure found in many sector ETFs today, while also potentially mitigating single stock risk,” he added, telling etf.com that there have been calls from investors for tools that offer greater precision in sector and industry investing for years. 

Mazza acknowledges that while someone could simply buy a portfolio of five to six names to achieve similar exposure, BIGB and its upcoming sister funds offer automatic rebalancing, which not only allows its investors to forgo the friction and effort of managing a portfolio themselves, but removes emotion and bias from the process.

“I think even those with the best intentions can let their behavioral biases potentially impact their ability for better outcomes,” Mazza said.  

 

Contact Heather Bell at [email protected] 

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.