Pro Picks: Top 5 Financial ETFs

It’s been over a year since Silicon Valley Bank (SVB) and Silvergate Capital (SI) collapsed.

While there have been flareups here and there, like New York Community Bank (NYCB), the regional banking sector has largely healed.

That’s why we suspect institutional money managers are examining the S&P Regional Banking ETF (KRE) closely.

Our TrackStar data shows that amongst all the financial-related ETFs, pros kept eyeballing the KRE 3x more than the broad financial XLF ETF.

We’re big fans of the KRE as way to play the regional banking sector, which trades at a historical discount.

But before you jump into shares, here’s what you need to know.

Key Facts About SMH

• Net assets: $2.9 billion
• 12-month trailing yield: 3.21%
• Inception: June 19, 2006
• Expense ratio: 0.35%
• Number of holdings: 142

KRE zeroes in on the U.S. regional banking sector, tracking the diverse and dynamic S&P Total Market Index (TMI) across all market caps.

Its equal-weighting approach ensures no single stock skews the portfolio, offering a balanced and stable investment landscape.

Quarterly rebalancing keeps the ETF agile, aligning with the sector’s pulse and maintaining relevance.

The top 10 holdings spotlight the leaders in regional banking, showcasing strength, growth potential, and investment appeal in this niche:

Source: SSGA

The fund consists of 140 companies that trade at an aggregate price-to-book ratio of 0.99x, indicating a slight discount on regional banks’ assets.

The index itself trades at a P/E ratio of 9.3x and price-to-cash flow of 7.5x.

Source: SSGA

These measures are lower than the 10-year average, mainly because investors worry that higher rates will weigh on the banks’ holdings.

However, with a future recession going from probable to unlikely, these same money managers are now taking a fresh look at how higher economic activity would help these banks.

Performance

The performance listed below seems at odds with what we show as the 5-year total return of 3.1%.

Source: SSGA

However, the data from SSGA’s website uses month-end numbers.

The exact difference will change from day-to-day. So, for our purposes, we’ll just say that its flat over five years.

Competition

There aren’t many other regional banking ETFs that we’d highlight simply because they’re thinly traded.

So, we pulled in the other top financial ETF searches by financial pros to see what else they’re looking at.

• Financial Select Sector SPDR Fund (XLF): One of the most popular ETFs, the XLF tracks the financial sector of the S&P 500 that includes large banks, insurers and more using a market cap weighting.
• iShares US Broker-Dealers ETF (IAI): A niche ETF, the IAI focuses on broker-dealers such as Schwab and Interactive brokers using a market cap weighting.
• Vanguard Financials ETF (VFH): Broader than the XLF, the VFH tracks the MSCI US Investable Market Financials 25/50 Index with a market cap-weighted approach, including smaller companies the XLF doesn’t.
• Invesco KBW Bank ETF (KBWB): Follows the KBW Nasdaq Bank Index, focusing on major U.S. banks using a market cap weighting.

Like many other ETFs we’ve covered, diversification tends to reduce overall performance.

Additionally, it’s noteworthy that larger companies have outperformed the smaller ones.

Our Opinion 10/10 

If you want to play the regional banking sector, there is no better ETF than the KRE.

It’s a low-cost vehicle that’s excellent for investors who want exposure but don’t want to dive into the details of these companies.

Its liquidity allows you to easily enter and exit positions and trade options on the ETF.