Better Financial Sector ETF: European-Focused iShares EUFN vs. State Street KBE Targeting U.S. Banks

The iShares MSCI Europe Financials ETF (NASDAQ:EUFN) and the State Street SPDR S&P Bank ETF (NYSEMKT:KBE) offer distinct paths into finance, separating broad European regional exposure from concentrated U.S. banking sub-industries.

While both funds operate within the financial sector, they cater to different geographic mandates and risk profiles. The State Street SPDR S&P Bank ETF provides equal-weighted access to domestic banks of all sizes, whereas the iShares MSCI Europe Financials ETF spans developed Europe, capturing large-cap institutions across multiple financial services categories beyond simple commercial banking.

Snapshot (cost & size)

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 SPDR S&P Bank ETF is the more affordable option with a 0.35% expense ratio. However, the iShares MSCI Europe Financials ETF may appeal to income seekers, as it offers a significantly higher payout than its U.S.-focused counterpart.

Performance & risk comparison

What's inside

The iShares MSCI Europe Financials ETF provides exposure to developed European markets, with its portfolio weights leaning toward financial services at 98% and technology at 1%. Its largest positions include HSBC Holdings at 9.42%, Banco Santander at 5.58%, and Allianz at 5.23%. The fund manages 84 holdings in total. It was launched in 2010. The iShares MSCI Europe Financials ETF has paid $1.65 per share over the trailing 12 months, which on its recent ~$39.81 share price works out to a 4.10% yield.

In contrast, the State Street SPDR S&P Bank ETF concentrates exclusively on the U.S. banking industry, with 100% of its assets in financial services. Its top holdings include The Bancorp at 1.09%, Rocket at 1.07%, and Nicolet Bankshares at 1.06%. This fund utilizes a modified equal-weighted strategy across 103 holdings to avoid over-concentration in the largest banks. It was launched in 2005. The State Street SPDR S&P Bank ETF has paid $1.47 per share over the trailing 12 months, which on its recent ~$68.32 share price works out to a 2.10% yield.

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What this means for investors

For those seeking to invest in the financial sector, the iShares MSCI Europe Financials ETF (EUFN) and State Street SPDR S&P Bank ETF (KBE) offer efficient ways to do so. These two funds are very different in approach and composition. Choosing between them depends on the factors that matter most to you.

EUFN is for investors who want exposure to the European financial sector, or who are income-focused, given its robust dividend yield. This ETF also delivers geographic diversification, since its holdings are spread across many countries. Its downsides include a higher expense ratio and currency risk due to fluctuations in exchange rates. Because the fund is market-cap weighted, its performance is heavily impacted by the largest companies.

If you want exposure to the domestic financial industry or prefer an equal-weighted approach, KBE is the winner here. Its equal-weight strategy ensures larger institutions don’t skew performance. This ETF can also appeal to active traders, since its average trading volume of 2.1 million is double EUFN’s 1.2 million, which can provide tighter bid-ask spreads.

HSBC Holdings is an advertising partner of Motley Fool Money. Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nicolet Bankshares and Rocket Companies. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.