Composition vs. Returns: Breaking Down the Structural Drift Between KBE and KRE

State Street SPDR S&P Regional Banking ETF (NYSEMKT:KRE) provides targeted exposure to local lenders, while State Street SPDR S&P Bank ETF (NYSEMKT:KBE) offers a broader lens across the entire U.S. banking industry.

Both funds use a modified equal-weighting strategy to avoid concentration in the "Big Four" money-center banks. This allows investors to capture movements in the broader financial infrastructure of the U.S. rather than just the performance of the largest, most dominant financial institutions.

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-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

These ETFs share an identical 0.35% expense ratio, making them equally cost-effective for long-term holders. Investors also receive the same 2.3% trailing dividend yield from both funds, resulting in a wash for those prioritizing current income over recent capital appreciation.

Performance & risk comparison

What's inside

State Street SPDR S&P Regional Banking ETF concentrates exclusively on Financial Services at 100%. Its portfolio includes 167 holdings, and its largest positions are United Bankshares Inc (NASDAQ:UBSI) at 1.16%, East West Bancorp Inc (NASDAQ:EWBC) at 1.15%, and Old National Bancorp (NASDAQ:ONB) at 1.15%. The fund seeks to track the performance of the S&P Regional Banks Select Industry Index by using a representative sampling technique. 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 ~$69.75 share price, works out to a 2.3% yield.

State Street SPDR S&P Bank ETF also maintains 100% exposure to the Financial Services sector. It holds 107 companies, and its largest positions include Central Bancompany (NASDAQ:CBC) at 1.03%, Equitable Holdings Inc (NYSE:EQH) at 1.02%, and Corebridge Financial Inc (NYSE:CRBG) at 1.01%. It provides focused exposure to the banking sector of the S&P Total Market Index, encompassing sub-industries such as asset management and diversified financial services. It 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 ~$63.55 share price, works out to a 2.3% yield.

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Which looks like the better buy

When comparing the State Street SPDR S&P Regional Banking ETF (KRE) and the State Street SPDR S&P Bank ETF (KBE), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should examine each fund's strategy. For its part, KRE is a fund focused on regional banks. It holds around 175 regional bank stocks. KBE, on the other hand, spreads its exposure across regional and major money-center banks.

Two other important factors are historical performance and income potential. Over the last five years, KRE has generated a total return of 14%, equating to a compound annual growth rate (CAGR) of 2.7%. KBE, meanwhile, has delivered a total return of 33%, with a 5.8% CAGR. Both funds have underperformed the S&P 500 over this period. Turning to income potential, these funds have nearly identical dividend yields of around 2.30%.

One final factor to weigh is cost. However, in this case, neither fund has an edge. Both funds have identical 0.35% expense ratios.

In summary, KRE and KBE are both ETFs focused on financial stocks, yet they differ mainly in composition and performance history. KBE, with its blended exposure to major money-center banking stocks, has significantly outperformed KRE over the last few years. However, for those investors seeking to diversify away from major money-center banking stocks, in particular, KRE may still hold some appeal.

Jake Lerch has positions in SPDR Series Trust - State Street SPDR S&P Regional Banking ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.