KRE - 3 Solid ETFs At Bargain Prices

2023-07-28 16:16:26 ET

Summary

• The SPDR S&P Regional Banking ETF (KRE) offers targeted exposure to the regional banking sector in the US.
• The SPDR S&P Insurance ETF (KIE) provides diversified exposure to the global insurance industry.
• The iShares US Broker-Dealers & Secs Exchanges ETF (IAI) focuses on the US broker-dealer and securities exchange industry.

Here are three financial sector ETFs that have been left behind as the market goes crazy for AI stocks.

The SPDR® S&P Regional Banking ETF ( KRE ) is an exchange-traded fund that seeks to provide investors with exposure to the regional banking sector within the United States. The fund is designed to track the performance of an underlying index composed of regional banks, offering a convenient way for investors to gain diversified exposure to this specific segment of the financial industry.

Investment Objective:

The primary objective of the KRE ETF is to replicate the performance of its underlying index, which includes regional banks that are not part of the nation's largest financial institutions. By doing so, the fund aims to capture the potential growth and profitability of regional banks while diversifying risk associated with investing in individual bank stocks.

Key Features:

Focused Exposure: KRE is specifically focused on regional banks, providing investors with targeted exposure to this particular segment of the financial market.

Diversification: The fund comprises a diversified portfolio of regional banks, which helps reduce the impact of individual bank stock price movements on the overall performance of the ETF.

U.S. Centric: KRE primarily includes regional banks operating within the United States, allowing investors to benefit from the economic conditions and financial regulations of the country.

Passive Management: The fund follows a passive investment strategy, attempting to replicate the performance of its underlying index rather than actively picking and choosing individual bank stocks. This approach typically leads to lower management fees.

Liquidity: As an exchange-traded fund, KRE offers investors the ability to buy and sell shares on major stock exchanges throughout the trading day, providing liquidity and flexibility for portfolio adjustments.

Risk Considerations:

Market Risk: KRE, like any equity investment, is subject to market fluctuations, and the value of its shares can rise or fall based on the overall performance of the regional banking sector and the broader market.

Sector-Specific Risk: As a specialized fund focused on regional banks, KRE may be more susceptible to risks specific to the financial industry, including regulatory changes, interest rate fluctuations, and economic conditions affecting regional banks.

Interest Rate Risk: Changes in interest rates can impact the profitability and lending activities of regional banks, which may affect the fund's performance.

Credit Risk: The fund's performance can be influenced by the creditworthiness of the regional banks it holds, as well as the quality of the loans in their portfolios.

Suitability:

KRE may be suitable for investors looking to gain exposure to the regional banking sector within the United States, particularly those who believe in the growth potential of regional banks and want to diversify their portfolio with a targeted financial industry investment. As with any investment, potential investors should carefully assess their investment objectives, risk tolerance, and investment time horizon before considering an investment in KRE.

Please note that this profile is a general overview and not a specific recommendation. Investors should conduct their research or seek advice from a financial advisor to determine if KRE aligns with their investment goals and risk tolerance.

KRE by the numbers

Top 5 Holdings

The SPDR® S&P Insurance ETF ( KIE ) is an exchange-traded fund that aims to provide investors with exposure to the dynamic and ever-evolving global insurance industry. The ETF is designed to track the performance of a carefully selected basket of insurance companies and related businesses, offering a convenient way for investors to gain diversified exposure to this sector.

Investment Objective:

The primary objective of the KIE ETF is to replicate the performance of an underlying index, which is composed of insurance companies from various regions and sub-sectors within the insurance industry. By doing so, the fund seeks to capture the potential growth and profitability of the insurance market while mitigating some of the risks associated with investing in individual insurance stocks.

Key Features:

Diversification: KIE provides investors with a diversified portfolio of insurance companies, reducing the impact of individual stock price fluctuations and enhancing overall portfolio stability.

Global Exposure: The fund includes insurance companies from various regions across the world, allowing investors to benefit from the growth potential in both established and emerging insurance markets.

Comprehensive Coverage: KIE encompasses various sub-sectors within the insurance industry, such as life insurance, property and casualty insurance, reinsurance, and specialty insurance, ensuring broad coverage of the market.

Passive Management: The fund is passively managed, meaning it seeks to replicate the performance of its underlying index rather than actively selecting individual stocks. This approach typically results in lower management fees for investors.

Liquidity: As an exchange-traded fund, KIE allows investors to buy and sell shares on major stock exchanges throughout the trading day, providing liquidity and flexibility for portfolio adjustments.

Risk Considerations:

Market Risk: Like any equity investment, KIE is subject to market fluctuations, and the value of its shares can rise or fall based on the overall performance of the insurance industry and the broader market.

Sector-Specific Risk: As a specialized fund focusing on the insurance sector, KIE may be more susceptible to risks specific to this industry, such as regulatory changes, catastrophic events, and changes in interest rates.

Currency Risk: For investors outside the fund's base currency, fluctuations in foreign exchange rates could affect the fund's returns.

Liquidity Risk: While ETFs are generally considered liquid, under certain market conditions, there may be limited liquidity in the fund's shares, which could impact the ability to buy or sell at desired prices.

Suitability:

KIE may be suitable for investors seeking exposure to the insurance industry, believing in its growth prospects, and looking for a diversified approach to investing in this sector. As with any investment, it's essential for potential investors to carefully consider their own investment objectives, risk tolerance, and time horizon before investing in the fund.

Please note that this profile is a general overview and not a specific recommendation. Investors should conduct their research or consult with a financial advisor to determine if KIE aligns with their investment goals and risk tolerance.

KIE by the numbers

Top 5 Holdings

The iShares US Broker-Dealers &Secs Exchanges ETF ( IAI ) is an exchange-traded fund that seeks to provide investors with exposure to the U.S. broker-dealer and securities exchange industry. The fund is designed to track the performance of an underlying index composed of companies engaged in activities such as investment banking, securities trading, and other brokerage services, offering a convenient way for investors to gain diversified exposure to this specific segment of the financial sector.

Investment Objective:

The primary objective of the IAI ETF is to replicate the performance of its underlying index, which includes companies operating in the broker-dealer and securities exchange industry. By doing so, the fund aims to capture the potential growth and profitability of this industry while diversifying risk associated with investing in individual stocks of these companies.

Key Features:

Industry Focus: IAI specifically focuses on the broker-dealer and securities exchange industry, providing investors with targeted exposure to this particular segment of the financial market.

Diversification: The fund comprises a diversified portfolio of companies engaged in investment banking, securities trading, and other brokerage services, which helps reduce the impact of individual stock price movements on the overall performance of the ETF.

U.S. Centric: IAI primarily includes companies operating within the United States, allowing investors to benefit from the economic conditions and regulatory environment of the country.

Passive Management: The fund follows a passive investment strategy, seeking to replicate the performance of its underlying index rather than actively selecting individual stocks. This approach typically results in lower management fees.

Liquidity: As an exchange-traded fund, IAI offers investors the ability to buy and sell shares on major stock exchanges throughout the trading day, providing liquidity and flexibility for portfolio adjustments.

Risk Considerations:

Market Risk: IAI, like any equity investment, is subject to market fluctuations, and the value of its shares can rise or fall based on the overall performance of the broker-dealer and securities exchange industry and the broader market.

Sector-Specific Risk: As a specialized fund focused on the broker-dealer and securities exchange industry, IAI may be more susceptible to risks specific to this financial sector, including changes in regulations, market volatility, and competition.

Interest Rate Risk: Changes in interest rates can impact the profitability and business activities of companies in the financial sector, which may affect the fund's performance.

Economic Risk: Economic conditions, both domestically and globally, can influence the financial industry's performance, potentially affecting the fund's returns.

Suitability:

IAI may be suitable for investors seeking exposure to the U.S. broker-dealer and securities exchange industry, particularly those who believe in the growth potential of this sector and want to diversify their portfolio with a targeted financial industry investment. As with any investment, potential investors should carefully assess their investment objectives, risk tolerance, and investment time horizon before considering an investment in IAI.

Please note that this profile is a general overview and not a specific recommendation. Investors should conduct their research or seek advice from a financial advisor to determine if the IAI ETF aligns with their investment goals and risk tolerance.

IAI by the numbers

Top 5 Holdings

Final Thoughts

I chose these financial sector ETFs because they have been left behind as the market continues to make new highs this year. For those who are underinvested, there is good value to be found in these funds. According to Matt Reed, a financial sector portfolio manager at Fidelity,

"As an economically sensitive group, the financial sector's performance in aggregate in the coming years is likely to be tied to the broader economy. Yet despite the storm clouds of a potential slowdown on the horizon, certain well-positioned financial stocks could represent solid value for long-term investors." ( Read the Fidelity article here.)

These three ETFs are value plays, and they stand to benefit from improving economic conditions. Investors tend to look ahead 6-9 months, and they are just beginning to anticipate the end of the Fed's rate hike cycle. When the Fed starts to talk about switching to rate cuts, these funds will be a good way to play the pivot.

For further details see: