Regional Bank Fund Offers Nationwide Potential

Jim Woods

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

Investors looking at the financial sector with a discerning eye these days may be wondering whether it is a good idea to invest in banks that still have some growth potential. For investors pondering just such a question, the SPDR S&P Regional Banking ETF (KRE) removes the uncertainty of which specific ones to invest in by granting exposure to a cluster of regional banks in one single investment.

Regional banks are usually smaller companies than national banks, which can mean that they have more room to grow and expand while still providing strong profits for shareholders. For example, one holding in this fund that pursues an “expansion” strategy is BB&T Corporation (BBT), which recently acquired financial services corporation National Penn for $1.8 billion dollars.

According to Seeking Alpha, BB&T also is one of the banks that has reached a new high in this market cycle. Alternatively, CIT Group (CIT) is the fund’s biggest holding and is up by more than 40% in the last 12 months.

As the chart below shows, this sector has been no slouch over the past 12 months, as KRE has risen 35.8% in that time. However, after being on fire in late 2016, the fund’s year-to-date performance has been less impressive, amounting to a 1.91% loss, and underperforming the broader financial sector.

As always, smaller companies also carry greater risk and this year has certainly had its share of volatility. The fund’s 1.41% yield adds a small incentive for potential owners, and more than pays for the 0.35% expense ratio.

KRE holds more than 100 companies, giving is a strong claim to diversity throughout the industry. Top holdings for KRE include CIT Group Inc (CIT), 2.41%; Fifth Third Bancorp (FITB), 2.34%; Zions Bancorporation (ZION), 2.34%; Huntington Bancshares Inc. (HBAN), 2.33%; and PNC Financial Services Group Inc. (PNC), 2.31%. The top 10 holdings account for approximately 23% of the fund’s assets.

Investors in search of a cost-effective way to gain a foothold in the regional banking sector may not need to look much further than the SPDR S&P Regional Banking ETF (KRE).

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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