Which Banking ETF Is Better, State Street's KBE or iShares' U.S. Regional Bank-Focused IAT?
Key Points
The State Street SPDR S&P Bank ETF offers a broader portfolio and slightly lower expense ratio than the iShares U.S. Regional Banks ETF.
While the iShares U.S. Regional Banks ETF has higher 1-year total returns, it has experienced significantly deeper drawdowns over the past five years.
The iShares U.S. Regional Banks ETF is highly concentrated in its top holdings, whereas the State Street SPDR S&P Bank ETF uses an equal-weighted approach to diversify across 103 stocks.
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The State Street SPDR S&P Bank ETF (NYSEMKT:KBE) and iShares U.S. Regional Banks ETF (NYSEMKT:IAT) both target the financial sector, but KBE offers broader industry diversification and a lower expense ratio than the regional-focused IAT.
Investors looking for exposure to the financial sector often choose between broad banking indices and niche industry funds. This comparison examines how a diversified bank fund like the State Street SPDR S&P Bank ETF stacks up against a concentrated regional banking vehicle such as the iShares U.S. Regional Banks ETF, focusing on costs, risks, and portfolio construction for long-term holders. Understanding the differences in industry exposure is critical for managing sector-specific volatility in a portfolio.
Snapshot (cost & size)
| Metric | IAT | KBE |
|---|---|---|
| Issuer | iShares | State Street |
| Share price | $62.21 (as of 2026-06-30) | $68.22 (as of 2026-06-30) |
| Expense ratio | 0.38% | 0.35% |
| 1-yr return (as of June 30, 2026) | 29.30% | 25.30% |
| Dividend yield | 2.60% | 2.10% |
| Beta | 0.88 | 0.89 |
| AUM | $656.0 million | $1.5 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The State Street fund is slightly more affordable with an expense ratio of 0.35%, compared to 0.38% for the iShares fund. While this 0.03 percentage point difference is small, it contributes to the long-term cost-efficiency of the portfolio. The iShares fund currently offers a higher trailing payout for income-seeking investors.
Performance & risk comparison
| Metric | IAT | KBE |
|---|---|---|
| Max drawdown (5 yr) | (55.50%) | (45.20%) |
| Growth of $1,000 over 5 years (total return) | $1,250.0 | $1,510.0 |
What's inside
The State Street SPDR S&P Bank ETF offers exposure to a wide array of financial sub-industries including asset management, custody banks, and commercial finance. With 103 holdings, the fund uses a modified equal-weighted index to ensure it is not overly reliant on any single institution. Its largest positions include Rocket Cos Inc. (NYSE:RKT) at 1.15%, Nicolet Bankshares Inc. (NYSE:NIC) at 1.05%, and The Bancorp (NASDAQ:TBBK) at 1.05%. The fund was launched in 2005. State Street SPDR S&P Bank ETF has paid $1.47 per share over the trailing 12 months, which on its recent ~$68.22 share price works out to a 2.10% yield.
The iShares U.S. Regional Banks ETF is significantly more concentrated, focusing exclusively on 31 U.S.-based regional banks. This strategy leads to much higher individual stock weighting, where its top positions include PNC Financial Services Group Inc. (NYSE:PNC) at 14.91%, U.S. Bancorp (NYSE:USB) at 14.32%, and Truist Financial Corp. (NYSE:TFC) at 9.48%. This concentration can lead to higher volatility during regional banking cycles. The fund was launched in 2006. iShares U.S. Regional Banks ETF has paid $1.62 per share over the trailing 12 months, which on its recent ~$62.21 share price works out to a 2.60% yield.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Now is a compelling time to invest in the banking industry as companies in the sector have delivered positive first-quarter earnings, and the potential of a Federal Reserve interest rate hike means greater profitability from loans.
For those seeking to invest in the banking sector, the State Street SPDR S&P Bank ETF (KBE) and iShares U.S. Regional Banks ETF (IAT) offer very different approaches to doing so. Deciding which fund to invest in depends on the strategy that best fits your goals.
KBE delivers broad exposure to the banking industry, and its larger number of holdings means the ETF is well diversified. Its far superior AUM translates into greater liquidity, making it the better choice for active traders.
IAT is for investors who want to target regional banks, which are heavily dependent on local economies and lending margins. These institutions have the potential for greater upside if the region they operate in is enjoying economic prosperity. However, IAT’s limited focus can result in higher volatility, and if a local economy struggles, so will IAT’s holdings in that region.
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Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nicolet Bankshares, Rocket Companies, Truist Financial, and U.S. Bancorp. The Motley Fool has a disclosure policy.
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