A 10/10 Regional Bank ETF

The swift collapse of banks Silvergate Capital (SI) and SVB Financial (SIVB) has shaken investors to their cores.

Are we facing another 2008 financial crisis?

We can’t say for sure. A lot depends on the Federal Reserve’s actions and inflationary pressures.

But these collapses haven’t stopped financial pros from searching for the SPDR S&P Regional Banking ETF (KRE) at a record pace, according to our proprietary Trackstar database.

Does KRE, the most well-known regional banking ETF, fit into your portfolio?

Key Facts About KRE

• Net assets: $3.3 billion
• 12-month trailing yield: 2.64%
• Inception: June 19, 2006
• Expense ratio: 0.35% 

KRE tracks the regional banking segment of the S&P Total Market Index (TMI), which tracks U.S. equities of all market caps.

The ETF uses equal weighting to avoid any single stock causing massive dislocation.

Holdings are rebalanced quarterly.

The current top 10 holdings are as follows:

Source: State Street

Until recently, SI and SVB were two of the ETF’s top 10 holdings.

Performance

Despite a terrible year to date, KRE’s 10-year return is pretty decent.

Source: First Trust

But the ETF is down more than 29% in the last three weeks.

That may, however, be the value investors are looking for.

Competition

There aren’t too many other regional bank ETFs. So we’ve included some other banking and financial ETFs in our comparison: 

• iShares U.S. Regional Banks ETF (IAT): Similar to KRE, IAT tracks the performance of an index of small- and mid-cap regional banks.
• Invesco KBW Regional Banking ETF (KBWR): KBWR tracks a modified market-cap-weighted index focused exclusively on regional banks in the U.S.
• First Trust NASDAQ ABA Community Bank Index Fund (QABA): QABA tracks an index of NASDAQ-listed commercial banks and thrifts, excluding the 50 largest.
• SPDR S&P Bank ETF (KBE): KBE tracks an equal-weighted index of U.S. banks.

IAT is similar to KRE in its investment philosophy. But as you’ll notice below, it has a higher expense ratio, lower dividend yield, and worse returns over five years.

KBWR is also pretty close and has a better five-year performance record than KRE, but a slightly lower dividend yield.

Fees 

• KRE: 0.35%
• IAT: 0.39%
• KBWR: 0.35%
• QABA: 0.60%
• KBE: 0.35%

Annual Dividend Yield

• KRE: 3.42%
• IAT: 2.97%
• KBWR: 3.22%
• QABA: 2.50%
• KBE: 3.51%

Five-Year Cumulative Performance

• KRE: -4.70%
• IAT: -5.89%
• KBWR: -1.86%
• QABA: -2.29%
• KBE: -3.88%

Our Opinion 10/10

Warren Buffett would say the risk/reward balance is in your favor here.

That doesn’t mean you should throw everything at KRE at once.

Averaged over time, a risk-adjusted (i.e., smaller) position stands a good chance of outperforming the broader market.