Published Wed, 02 Dec 2020 01:43:11 -0500 on Seeking Alpha
Seeking AlphaETF Analysis | Financials SPDR S&P Regional Banking ETF: Cost-Effective, Relatively High-Yielding ETFDec. 2, 2020 1:43 AM ET|| About: SPDR S&P Regional Banking ETF (KRE)by: Michael A. Gayed, CFAMichael A. Gayed, CFA The Lead-Lag ReportAnticipate Corrections and Volatility with Award Winning ResearchSummarySPDR S&P Regional Banking ETF attempts to replicate the S&P Regional Banks Select Industry Index.
The fund has a total of 128 holdings.
TTM dividend yield of 2.81%, higher than most of its peers.
Price is what you pay. Value is what you get - Warren Buffett
The current low interest rate scenario is something investors should be aware of. Bank profits are directly correlated to the benchmark interest rate. Given the current situation with 0% interest rates, banks have hit net income and net interest margins (NIMs). Investors should be cautious because interest rates are expected to remain extremely low in the medium term.
The SPDR S&P Regional Banking ETF (NYSEARCA: KRE) ranks relatively better than most peers in many aspects. It has the lowest expense ratio amongst peers at 0.35%. It's also the largest ETF tracking regional banks with an AUM of $1.59bn. But does that warrant a buy? Investors need to factor in the banking sector's headwinds due to the low-interest rate regime. While it's anybody's guess as to when the Fed will start raising rates again, we know that we shouldn't expect to see significant earnings growth improvements in the medium term.
Share Price Performance
Over five years, we can see that KRE has significantly underperformed the S&P Index. 2019, in particular, was a bad year for banks as the Fed cut interest rates thrice. There would seem to be limited upside in the short term as long as the Fed sticks with its dovish stance.
A similar trend is witnessed for other ETFs that track the regional bank sub-segment.
Total Return Analysis
In terms of total returns, KRE sits in the middle... Read more