The SPDR KBW Regional Banking ETF (NYSE:KRE) (Expense Ratio 0.35%) has seen substantial inflows this week to the tune of about $250 million, and we note that the fund’s asset base is just north of $2 billion at the moment.
Year-to-date, KRE has actually still experienced net outflows of about $475 million out, but that said, this number has been abated a bit thanks to this week’s creation fervor. KRE tracks the S&P Regional Banks Select Industry Index, which is made up mostly of Mid and Small-Cap banks — not the JPM, WFC, and C’s of the world. In fact, 50% of the portfolio resides in the Mid-Cap space. There is also substantial exposure to Small-Caps of 31%, and even a 3% slice dedicated to Microcap regional banks.
15% of the portfolio is invested in “Large-Cap” names, but again you will not see the large, “Money-Center” banks that populate a fund like XLF (SPDR Financial Select Sector, Expense Ratio 0.15%).
KRE has outperformed the broad market as well as the broad “Financial” sector as measured by XLF in the trailing one-month period, and it seems this week’s recent buyers in the marketplace are speculating that this may continue over the next several months, perhaps even into year’s end. When we look at the top holdings of KRE we see some recognizable names, along with some not-so-recognizable ones:
KRE – Top Holdings
|Symbol||Company||% of Total|
|CFG||Citizens Financial Group Inc||3.94%|
|FITB||Fifth Third Bancorp||3.86%|
|CIT||CIT Group Inc||3.78%|
|RF||Regions Financial Corporation||3.71%|
|PNC||PNC Financial Services Group Inc.||3.71%|
|STI||SunTrust Banks Inc.||3.67%|
|HBAN||Huntington Bancshares Incorporated||3.53%|
Of course, mergers and acquisitions in the Banking sector are not a rarity, and some investors may utilize KRE purely for the fact that there may be some attractive takeover candidates within the underlying portfolio of ninety-eight regional banks, depending on one’s individual analysis. For example, at times we have even seen not just domestic acquisitions but internationally based banks such as SAN acquire names like Sovereign Bank in the past.
KRE is the largest “Regional Banking” play in terms of AUM size in the marketplace, but within the context of this note it also makes sense to look at:
- IAT (iShares U.S. Regional Banks, Expense Ratio 0.43%, $292 million in AUM) and
- KBWR (PowerShares KBR Regional Banking Portfolio, Expense Ratio 0.35%, $127 million in AUM).
Investors can also look at the rarely used but potentially useful leveraged regional plays:
- DPST (Direxion Daily Regional Banks Bull 3X, Expense Ratio 0.95%, $1.7 million in AUM) and
- WDRW (Direxion Daily Regional Banks Bear 3X, Expense Ratio 0.95%, $1.1 million in AUM).
KRE shares fell $0.10 (-0.24%) to $42.01 in Wednesday afternoon trading. Year-to-date, KRE has gained 0.29%.
Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.
Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.
He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.