This Fund Features Small-Cap Banks

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Continuing our series on exchange-traded funds (ETFs) in the financial sector, we are featuring SPDR S&P Regional Banking ETF (KRE).

KRE tracks an equal-weighted index that exclusively tracks U.S. regional banks. You may remember our previously covered SPDR S&P Bank ETF (KBE), which is the sister fund of KRE and has a greater focus on large-cap stocks.

KRE’s equal-weighting strategy means that the fund is more biased towards small-cap and mid-cap banks, but also encompasses single-stock-related factors that have less influence on the fund’s performance. This is what separates KRE from popular peer financial funds such as Financial Select Sector SPDR ETF (XLF), which is heavily dominated by large-cap companies.

As a result, KRE’s profile is often not as impacted by many factors that are known to drive performance of big Wall Street banks. With a sizable $3.86 billion in total assets and a substantial daily trading volume of $387.11 million, KRE is a popular and highly liquid fund. The fund has a reasonable expense ratio of 0.35% and a stable dividend yield of 1.48%.

From the chart below, you can see that KRE got off to a slow start in 2016 but climbed sharply in November from around $42 to $56, or 33%, in the last few months. For comparison, the financial sector’s overall one-year return is 31.62% and the S&P 500’s one-year return is 17.45%.

As a non-diversified fund, KRE is 100% invested in the financial industry. It has close to 90 holdings in its portfolio, without going over 5% in any one single holding.

Some of its holdings include M&T Bank Corp. (MTB), 3.80%; PNC Financial Services Group Inc. (PNC), 3.79%; SunTrust Banks Inc. (STI), 3.73%; Regions Financial Corp (RF), 3.64%; and Citizens Financial Group Inc. (CFG), 3.64%.

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KRE can be used as a vehicle for investors to diversify their portfolio and as a bet on the strength of the U.S. economy. If you wish to participate in the active financial sector, I encourage you to research SPDR S&P Regional Banking ETF (KRE) as a possible addition to your portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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