The SPDR S&P 500 Bank Fund ETF (KBE) combines two different ideas into one solution — a focus on well-known names as well as exposure beyond the typical large-cap stocks, explains Jim Woods, editor of Successful ETF Investing.


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KBE’s marriage of these two ideas comes as a result of its equal-weighted approach to the banking stocks it holds. This means that an investment in KBE offers easy exposure to large-, mid- and small-cap banks in significant amounts.

Admittedly, this makes the fund potentially riskier than some ETFs, but also more interesting. KBE offers investors access to a wide array of companies and sub-industries in its portfolio.

This list includes: asset management & custody banks, diversified banks, regional banks, other diversified financial services, and thrifts & mortgage finance. Diversification is one of the most appealing points of many ETFs, and KBE is a great example of this appeal.

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Also, the relative performance of this fund is quite interesting. Year to date, with a gain of just 0.76%, the fund has greatly underperformed both the S&P and the best-known financial ETF, XLF.

However, over a 12-month scope, it has dramatically beaten both by posting a 37% gain, compared to just 6.5% for XLF and 14.2% for the S&P. Interested investors also can pick up a 1.36% dividend here, set against an expense ratio of 0.35%. Assets under management for this fund total $3.25 billion.

Because this fund uses an equal-weighting strategy, its top holdings are essentially arbitrary. More interestingly, the fund has 77.5% of assets in regional banks, about 10% in diversified banks, 7% in thrifts and mortgage finance, 4% in asset management and custody banks and 2% in other diversified financial services.

This heavy weighting in the regional bank sector should be noted by any investor who is serious about possibly investing in this ETF.

For those looking for a less-typical way to gain exposure to the financial sector, the SPDR S&P 500 Bank Fund ETF is an investment vehicle that could prove to be useful.

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