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Comparing the broad financial exposure of the Fidelity MSCI Financials Index ETF (NYSEMKT:FNCL) with the niche focus of the State Street SPDR S&P Regional Banking ETF (NYSEMKT:KRE) reveals significant differences in costs, diversification, and historical risk profiles.
Investors looking for financial sector exposure must choose between broad industry coverage and specific sub-sector bets. While both funds target the financial world, their strategies diverge. One tracks a narrow slice of regional lenders, while the other captures a massive swath of the U.S. financial market, spanning banks, insurers, and payment processors.
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Fidelity MSCI Financials Index ETF is the more affordable option with an expense ratio of 0.08%, while State Street SPDR S&P Regional Banking ETF costs 0.35%. The SPDR fund offers a higher payout, providing a yield 0.66 percentage points above its competitor.
Fidelity MSCI Financials Index ETF provides exposure to 404 holdings, with 97% in financial services, 2% in technology, and 1% in real estate. Its largest positions include JPMorgan Chase & Co (NYSE:JPM) at 10.33%, Berkshire Hathaway Inc Cl B (NYSE:BRKB) at 8.45%, and Visa Inc Cl A (NYSE:V) at 7.30%. The fund was launched in 2013. Fidelity MSCI Financials Index ETF has paid $1.29 per share over the trailing 12 months, which, on its recent ~$78 share price, works out to a 1.7% yield.
State Street SPDR S&P Regional Banking ETF focuses exclusively on financial services, which make up 100% of its 167 holdings. Its largest positions include East West Bancorp Inc (NASDAQ:EWBC) at 1.15%, Hancock Whitney Corp (NASDAQ:HWC) at 1.14%, and First Hawaiian Inc (NASDAQ:FHB) at 1.14%. The fund was launched in 2006. State Street SPDR S&P Regional Banking ETF has paid $1.61 per share over the trailing 12 months, which, on its recent ~$69 share price, works out to a 2.3% yield.
For more guidance on ETF investing, check out the full guide at this link.
When comparing the Fidelity MSCI Financials Index ETF (FNCL) and the State Street SPDR S&P Regional Banking ETF (KRE), investors should consider several key factors. Let's see what they tell us about each fund.
First, we should examine each fund's strategy. FNCL seeks to replicate the performance of the broad financial ecosystem. As such, it holds many mega-cap U.S. financial stocks, spanning banking, insurance, and payment tech. KRE, on the other hand, focuses on the regional banking subsector.
Two other important factors are historical performance and income potential. Over the last five years, FNCL has generated a total return of 52%, with a compound annual growth rate (CAGR) of 8.7%. KRE, by contrast, has delivered a total return of 14%, with a 2.6% CAGR. As for income potential, FNCL has a dividend yield of 1.7%, while KRE boasts 2.3%, giving the regional bank ETF a slight edge.
One final factor to weigh is cost. Here, FNCL has a clear edge. Its expense ratio is a very affordable 0.08%, while KRE's is 0.35%. For context, a person who invests $10,000 in each fund would expect to pay $8 in annual fees for their FNCL shares but $35 in annual fees for their KRE shares.In summary, although FNCL and KRE both contain financial stocks, they differ in many key respects. FNCL wins the head-to-head matchup on cost and historical performance. However, its broad focus and top-heavy focus on mega-cap financials may not be the best approach for every investor or portfolio. For those seeking greater diversification or with an appetite for higher yield, KRE could be a suitable choice, too.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Jake Lerch has positions in SPDR Series Trust - State Street SPDR S&P Regional Banking ETF and Visa. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, and Visa. The Motley Fool has a disclosure policy.
Navigating Financial ETFs: Why Fee Efficiency Wins, but Niche Yield Still Has a Place was originally published by The Motley Fool
