Should You Invest in the SPDR S&P Regional Banking ETF (KRE)?

Designed to provide broad exposure to the Financials – Regional Banks segment of the equity market, the SPDR S&P Regional Banking ETF (KRE) is a passively managed exchange traded fund launched on 06/19/2006.

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An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Financials – Regional Banks is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 5, placing it in top 31%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $3.66 billion, making it one of the largest ETFs attempting to match the performance of the Financials – Regional Banks segment of the equity market. KRE seeks to match the performance of the S&P Regional Banks Select Industry Index before fees and expenses.

The S&P Regional Banks Select Industry Index represents the regional banks segment of the S&P Total Market Index.

Costs

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

Annual operating expenses for this ETF are 0.35%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 2.29%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector–about 100% of the portfolio.

Looking at individual holdings, First Citizens Bancshares Inc. Class A (FCNCA) accounts for about 1.71% of total assets, followed by Silvergate Capital Corp. Class A (SI) and Old National Bancorp (ONB).

The top 10 holdings account for about 15.48% of total assets under management.

Performance and Risk

The ETF has lost about -10.05% and is down about -8.21% so far this year and in the past one year (as of 10/31/2022), respectively. KRE has traded between $56.83 and $78.78 during this last 52-week period.

The ETF has a beta of 1.15 and standard deviation of 41.70% for the trailing three-year period, making it a high risk choice in the space. With about 146 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Regional Banking ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, KRE is an excellent option for investors seeking exposure to the Financials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

Invesco KBW Regional Banking ETF (KBWR) tracks KBW Nasdaq Regional Banking Index and the iShares U.S. Regional Banks ETF (IAT) tracks Dow Jones U.S. Select Regional Banks Index. Invesco KBW Regional Banking ETF has $81.15 million in assets, iShares U.S. Regional Banks ETF has $776.16 million. KBWR has an expense ratio of 0.35% and IAT charges 0.39%.

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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