Bank ETF's: A Return-Risk Perspective

Abstract

Exchange Traded Fund (ETF) remains the hottest area of the investment world. An ETF is a security that tracks an index and represents a basket of stocks similar to an index fund, but trades like a stock on an exchange. The ETFs, like index funds, typically reflect the performance of the benchmark index. Hence, looking at the performance of benchmark indices of India, retail investor can also expect similar kind of returns from the ETFs, instead of struggling to select the best out of hundreds of available funds. Besides this, ETFs also have advantages like lower expense ratio and distribution costs over index funds. The present study is an attempt to evaluate the risk return perspective of entire bank ETFs available in India. The study examines the portfolio characteristics of bank ETFs, compares the performance of the bank ETFs with the industry average and its benchmark i.e. CNX PSU Bank Index. It further examines its risk-return with the help of mean, standard deviation, beta, R-squared statistics, Sharpe and Treynor ratio. It has been observed that the entire selected bank ETFs are cost effective and moderately aggressive in nature. The performance of the Bank BeES is notable on the basis of its risk-return perspective.