SPDR KBW Regional BankingKRE

Morningstar Rating

ETF Research and Analysis

by John Gabriel
Suitability

KBW Regional Banking ETF KRE offers investors a direct play on this subsector of the financial industry. By employing an equal-weighting methodology across its portfolio of 50 regional banks, the fund ensures that no single holding will   Read more 

Bull Case

This is the lowest-cost regional-banking ETF around.
The fund's equal-weighting methodology prevents one or two big banks from monopolizing the portfolio. It also makes KRE a much purer-play on regional banking than rivals like IAT or RKH, which are dominated by larger money center banks.
Investing in this fund provides investors with diverse exposure to 50 small regional banks, thereby avoiding the need to take on single stock risk. This has proved critical when investing in the financial sector as we've witnessed once-venerable firms crumble amid 2008's credit crisis. Read more 

Bear Case

Even on a relative basis, small regional banks probably won't receive near the amount of government aid given to the national money-center banks, as the small regionals aren't large enough to pose the same systemic risk to the financial system. This could put them at a competitive disadvantage in the fight for survival.

Recently, the deterioration of the credit markets has caused an adverse impact in a broad range of mortgage, asset-backed, auction rate, and other markets, thereby negatively affecting a wide range of financial institutions. Unfortunately, regionals tend to be more asset sensitive than national money center banks.

While aid from the government should help banking institutions survive as going concerns, it can also (and often does) mean that equityholders get wiped out. The grim reality is that equityholders are at the very bottom of the capital structure. Read more 

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