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  1. Default Banking Fund Offers Sector Diversification

    The SPDR S&P 500 Bank Fund ETF (KBE) combines two different ideas into one solution.

    Many exchange-traded funds (ETFs) that target a specific sector focus on well-known names to attract interest of investors. However, there are some investors who are more interested in funds that provide exposure beyond the typical large-cap stocks in the market.

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    KBE’s marriage of these two ideas comes as a result of its equal-weighted approach to the banking stocks it holds. This means that an investment in KBE offers easy exposure to large-, mid- and small-cap banks in significant amounts.

    Admittedly, this makes the fund potentially riskier than some ETFs, but also more interesting. For instance, unlike a more focused ETF such as the SPDR S&P Regional Banking ETF (KRE), KBE offers investors access to a wide array of companies and sub-industries in its portfolio. This list includes: asset management & custody banks, diversified banks, regional banks, other diversified financial services, and thrifts & mortgage finance. Diversification is one of the most appealing points of many ETFs, and KBE is a great example of this appeal.

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    Also, the relative performance of this fund is quite interesting. Year to date, with a gain of just 0.76%, the fund has greatly underperformed both the S&P and the best-known financial ETF, XLF. However, over a 12-month scope, it has dramatically beaten both by posting a 37% gain, compared to just 6.5% for XLF and 14.2% for the S&P. Interested investors can also pick up a 1.36% dividend here, set against an expense ratio of 0.35%. Assets under management for this fund total $3.25 billion.


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    Because this fund uses an equal-weighting strategy, its top holdings are essentially arbitrary. More interestingly, the fund has 77.5% of assets in regional banks, about 10% in diversified banks, 7% in thrifts and mortgage finance, 4% in asset management and custody banks and 2% in other diversified financial services. This heavy weighting in the regional bank sector should be noted by any investor who is serious about possibly investing in this ETF.

 

 

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