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.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
KRE is managed by State Street Global Advisors, and this fund has amassed over $4.01 billion, which makes it one of the largest ETFs in the Financials ETFs. KRE, before fees and expenses, 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
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.
Operating expenses on an annual basis are 0.35% for KRE, making it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 3.04%.
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.
This ETF has heaviest allocation in the Financials sector - about 100% of the portfolio.
Taking into account individual holdings, Western Alliance Bancorp (WAL) accounts for about 3.59% of the fund's total assets, followed by Zions Bancorp Na (ZION) and Truist Financial Corp (TFC).