How Do the Invesco KBW Bank ETF (KBWB) and the State Street Regional Banking Fund ETF (KRE) Compare With Each Other?

The State Street SPDR S&P Regional Banking ETF (NYSEMKT:KRE) and Invesco KBW Bank ETF (NASDAQ:KBWB) offer distinct paths into the banking sector, with one focusing on smaller regional players and the other targeting large national institutions.

Both funds provide exposure to U.S. financial institutions, but their portfolio construction leads to different risk-reward profiles. While the State Street fund casts a wide net across 167 smaller lenders to capture the regional banking industry, the Invesco fund provides highly concentrated exposure to 26 of the heavyweights that dominate the American financial landscape.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

Both funds have an identical expense ratio of 0.35%, so investors may choose between them based on strategy rather than management costs. The Invesco fund offers a slightly lower dividend yield of 2.1%, compared with 2.3% for the State Street fund, reflecting a minor difference in annual income potential.

Performance & risk comparison

What's inside

The Invesco KBW Bank ETF concentrates on 26 holdings within the financial services sector. Its largest positions include JPMorgan Chase & Co (NYSE:JPM) at 8.10%, Wells Fargo & Co (NYSE:WFC) at 8.01%, and Morgan Stanley (NYSE:MS) at 7.77%. The fund was launched in 2011. Invesco KBW Bank ETF has paid $1.87 per share over the trailing 12 months, which, on its recent ~$89 share price, works out to a 2.1% yield.

The State Street SPDR S&P Regional Banking ETF tracks 167 holdings, focusing entirely on financial services companies. Its top holdings include United Bankshares (NASDAQ:UBSI) at 1.15%, Old National Bancorp (NASDAQ:ONB) at 1.14%, and East West Bancorp (NASDAQ:EWBC) at 1.14%. It was launched in 2006. State Street SPDR S&P Regional Banking ETF has paid $1.61 per share over the trailing 12 months, which, on its recent ~$71 share price, works out to a 2.3% yield.

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Which looks like the better buy

To compare the State Street SPDR S&P Regional Banking ETF (KRE) and Invesco KBW Bank ETF (KBWB), investors should consider several key details. Let's see what they tell us about each fund.

First, we should discuss how the strategies for these funds differ. Crucially, KRE is a fund that focuses on regional banks. These are smaller banking institutions that serve local communities up to entire regions. KBWB, conversely, holds national money-center bank stocks, with a few large regional banks thrown in.

Two other important factors are historical performance and income potential. As for performance, KBWB wins the head-to-head matchup. Since 2016, KBWB has generated a total return of 210%, equating to a compound annual growth rate (CAGR) of 12%. Meanwhile, KRE has delivered a total return of 111%, with a 7.8% CAGR. Both funds have underperformed the S&P 500 over this same period. Turning to income potential, KRE boasts a dividend yield of 2.32%, while KBWB offers 2.14%, giving KRE a slight edge among income-focused investors.

One final factor to weigh is cost. But in this regard, there is no difference. Both funds have an expense ratio of 0.35%, which ranks somewhat near the average for ETFs. For context, a person who invests $10,000 in either fund should expect to pay $35 per year in fees.

To conclude, although KRE and KBWB are both financial ETFs, they target specific sub-sectors of the financial landscape. KRE may be favored by investors seeking small-cap exposure or those looking to derive more income from their investments. KBWB is an option for investors seeking concentrated exposure to major U.S. banks.

Wells Fargo is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Jake Lerch has positions in SPDR Series Trust - State Street SPDR S&P Regional Banking ETF. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.