Market Chatter: Blackstone, Carlyle-Owned Medline Industries Seeks $5 Billion in IPO

Making its debut on 11/08/2005, smart beta exchange traded fund SPDR S&P Capital Markets ETF (KCE) provides investors broad exposure to the Financials ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

KCE is managed by State Street Global Advisors, and this fund has amassed over $471.53 million, which makes it one of the average sized ETFs in the Financials ETFs. Before fees and expenses, KCE seeks to match the performance of the S&P Capital Markets Select Industry Index.

The S&P Capital Markets Select Industry Index represents the capital markets segment of the S&P Total Market Index.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.56%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 100% of the portfolio.

When you look at individual holdings, Lpl Financial Holdings Inc (LPLA) accounts for about 2.10% of the fund's total assets, followed by Raymond James Financial Inc (RJF) and Carlyle Group Inc/the (CG).

KCE's top 10 holdings account for about 18.99% of its total assets under management.

Performance and Risk

The ETF has gained about 42.60% so far this year and is up roughly 64.17% in the last one year (as of 11/21/2024). In the past 52-week period, it has traded between $89.36 and $145.64.

The fund has a beta of 1.18 and standard deviation of 23.04% for the trailing three-year period, which makes KCE a high risk choice in this particular space. With about 64 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Capital Markets ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

IShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI) tracks Dow Jones U.S. Select Investment Services Index. The fund has $1.71 billion in assets. IAI has an expense ratio of 0.40%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research