State Street SPDR vs. iShares: Which Bank ETF Wins This Showdown?
Take concentration risk and amplify it, and one ETF ends up looking far more attractive.
By Erin Kennedy
State Street SPDR S&P Bank ETF (KBE +0.54%) offers broader industry exposure and a slightly lower expense ratio, while iShares U.S. Regional Banks ETF (IAT +0.17%) provides a concentrated play specifically on regional institutions.
Investors seeking exposure to the banking sector often weigh regional specialization against broader industry diversification. These two funds offer distinct approaches to the financial landscape, differing in their basket size, concentration levels, and underlying sub-industry allocations within the United States.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The difference between the two ETFs’ expense ratios is pretty marginal. On the income front, the iShares fund provides a higher dividend yield of 2.8% versus 2.3% for its peer.
Performance & risk comparison
What's inside
The State Street ETF spreads its capital across 101 holdings. This fund tracks a modified equal-weighted index, which helps prevent any single stock from dominating the portfolio. Its largest positions include Voya Financial (VOYA 0.36%) at 1.24%, Citigroup (C 0.50%) at 1.2%, and Apollo Global Management (APO 0.81%) at 1.19%. Launched in 2005, the fund has a trailing-12-month dividend payout of $1.48 per share. Its broad reach includes sub-industries like asset management, custody banks, and mortgage finance, providing a wider lens on the banking world than a regional-only strategy.
In contrast, the iShares fund is highly concentrated, with just 31 holdings. The fund, which launched in 2006, is heavily weighted toward its largest constituents. Top holdings include PNC Financial Services Group (PNC 0.47%) at 14.67%, U.S. Bancorp (USB +0.40%) at 14.17%, and Truist Financial (TFC +0.32%) at 9.6%. It paid $1.62 per share in dividends over the trailing 12 months. Because IAT limits itself to regional institutions, it lacks the exposure to diversified financial services and global custody banks found in the State Street fund, leading to a much narrower investment scope.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
There are several things that make State Street's fund potentially more attractive to investors. For one, it's far more diversified, holding over three times as many stocks as IAT. The equal-weight mandate also reduces concentration risk. Sure, it has a slightly lower dividend yield and one-year return, but the ETF has a lower beta than its peer, as well as a less-steep max drawdown over the past five years. Furthermore, KBE has more assets under management and about 10 times higher average trading volume, which will likely appeal to investors who value liquidity.
A final note on concentration risk: It's not just that KBE has more stocks overall compared to IAT. The latter only holds 31 equities, but on top of that, its three largest positions account for about 38% of the portfolio. That's putting a lot of eggs in one basket, so to speak, and some investors may not feel comfortable with that. I sure wouldn't.