News

A smart beta exchange traded fund, the SPDR S&P Regional Banking ETF (KRE) debuted on 06/19/2006, and offers 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.

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.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by State Street Global Advisors, KRE has amassed assets over $2.78 billion, making it one of the largest ETFs in the Financials ETFs. This particular fund 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.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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

It has a 12-month trailing dividend yield of 3.15%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

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

Looking at individual holdings, Citizens Financial Group (CFG) accounts for about 2.54% of total assets, followed by Western Alliance Bancorp (WAL) and Webster Financial Corp (WBS).

Its top 10 holdings account for approximately 24.9% of KRE's total assets under management.

Performance and Risk

So far this year, KRE has lost about -3.25%, and was up about 40.14% in the last one year (as of 05/13/2024). During this past 52-week period, the fund has traded between $36.96 and $53.82.

The fund has a beta of 1.10 and standard deviation of 31% for the trailing three-year period, which makes KRE a high risk choice in this particular space. With about 143 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Regional Banking 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.

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 $54.95 million in assets, iShares U.S. Regional Banks ETF has $618.91 million. KBWR has an expense ratio of 0.35% and IAT charges 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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.