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Is SPDR S&P Regional Banking ETF (KRE) a Strong ETF Right Now?

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The SPDR S&P Regional Banking ETF (KRE - Free Report) was launched on 06/19/2006, and is a smart beta exchange traded fund designed to offer broad exposure to the Financials ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

Because the fund has amassed over $5.98 billion, this makes it one of the largest ETFs in the Financials ETFs. KRE is managed by State Street Global Advisors. This particular fund, before fees and expenses, seeks to match the performance of the S&P Regional Banks Select Industry Index.

The S&P Regional Banks Select Industry Index represents the regional banks 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 cheaper products in the space, this ETF has annual operating expenses of 0.35%.

The fund has a 12-month trailing dividend yield of 1.81%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 100% of the portfolio, the fund has heaviest allocation to the Financials sector.

Taking into account individual holdings, Silvergate Capital Corp. Class A (SI - Free Report) accounts for about 3.01% of the fund's total assets, followed by Western Alliance Bancorp (WAL - Free Report) and Regions Financial Corporation (RF - Free Report) .

Its top 10 holdings account for approximately 21.95% of KRE's total assets under management.

Performance and Risk

The ETF has gained about 7.27% so far this year and was up about 36.25% in the last one year (as of 01/12/2022). In the past 52-week period, it has traded between $54.37 and $77.42.

The fund has a beta of 1.33 and standard deviation of 40.72% for the trailing three-year period, which makes KRE a high risk choice in this particular space. With about 134 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Regional Banking ETF is an excellent option for investors seeking to outperform the Financials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco KBW Regional Banking ETF (KBWR - Free Report) tracks KBW Nasdaq Regional Banking Index and the iShares U.S. Regional Banks ETF (IAT - Free Report) tracks Dow Jones U.S. Select Regional Banks Index. Invesco KBW Regional Banking ETF has $79.91 million in assets, iShares U.S. Regional Banks ETF has $1.54 billion. KBWR has an expense ratio of 0.35% and IAT charges 0.41%.

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.

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