The SPDR S&P Capital Markets ETF (KCE Quick QuoteKCE - Free Report) made its debut on 11/08/2005, and is a smart beta exchange traded fund that provides broad exposure to the Financials ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Managed by State Street Global Advisors, KCE has amassed assets over $219.78 million, making it one of the average sized ETFs in the Financials ETFs. This particular fund seeks to match the performance of the S&P Capital Markets Select Industry Index before fees and expenses.

The S&P Capital Markets Select Industry Index represents the capital markets segment of the S&P Total Market Index.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

With one of the least expensive products in the space, this ETF has annual operating expenses of 0.35%.

KCE's 12-month trailing dividend yield is 1.79%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

KCE's heaviest allocation is in the Financials sector, which is about 100% of the portfolio.

Looking at individual holdings, Robinhood Markets Inc A (HOOD Quick QuoteHOOD - Free Report) accounts for about 1.87% of total assets, followed by Coinbase Global Inc Class A (COIN Quick QuoteCOIN - Free Report) and Schwab (charles) Corp (SCHW Quick QuoteSCHW - Free Report) .

Its top 10 holdings account for approximately 17.65% of KCE's total assets under management.

Performance and Risk

So far this year, KCE has added roughly 8.31%, and was up about 42.05% in the last one year (as of 05/08/2024). During this past 52-week period, the fund has traded between $77.96 and $110.83.

The fund has a beta of 1.20 and standard deviation of 22.71% for the trailing three-year period, which makes KCE a high risk choice in this particular space. With about 65 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Capital Markets ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

IShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI Quick QuoteIAI - Free Report) tracks Dow Jones U.S. Select Investment Services Index. The fund has $1.09 billion in assets. IAI has an expense ratio of 0.40%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.