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

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

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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

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.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

KRE is managed by State Street Global Advisors, and this fund has amassed over $3.04 billion, which makes it one of the largest ETFs in the Financials ETFs. Before fees and expenses, this particular fund 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

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

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 2.43%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

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

Looking at individual holdings, First Horizon Corporation (FHN - Free Report) accounts for about 2.81% of total assets, followed by M&t Bank Corporation (MTB - Free Report) and People's United Financial Inc. .

Its top 10 holdings account for approximately 21.72% of KRE's total assets under management.

Performance and Risk

The ETF has lost about -17.17% so far this year and is down about -2.41% in the last one year (as of 07/19/2022). In the past 52-week period, it has traded between $56.83 and $78.78.

The ETF has a beta of 1.21 and standard deviation of 41.68% for the trailing three-year period, making it a high risk choice in the space. With about 139 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 $74.34 million in assets, iShares U.S. Regional Banks ETF has $839.51 million. 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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