In March 2023, four small and mid-cap U.S. banks failed in short succession. In the dark days of the U.S. banking crisis, Silvergate Bank and Signature Bank failed due to the volatility in the crypto markets.
While Silicon Valley Bank (SVB) was hit by a bank run after they sold their Treasury bonds at a loss. SVB’s failure resulted in fear that led to a bank run on First Republic Bank, taking it down as well.
These events caused a sell off in bank stocks, pulling down the entire financials sector by around 12-15%. Major bank stocks were also down during the period, notably:
- Citigroup: -14.5%
- JPMorgan: -12.4%
- Bank of America: -18.7%
Now that it seems we have tide over the climax of the banking crisis, you may be thinking of getting some exposure to the banking sector to catch a potential recovery. Or, you may still be bearish and want to short the sector.
With over 4000 community banks and 134 regional banks across U.S., it can be difficult to pick the best U.S. bank stocks. So, here’re the best regional bank ETFs that will give you exposure to the U.S. banks:
Best Bank Regional ETFs
| Regional Bank ETFs | Ticker | Expense Ratio | Why This ETF? | Assets Under Management (AUM) | Performance (YTD) | Dividend Yield | Underlying Index | Inception Date | Fund Manager | Number of Holdings | Top 5 holdings |
|---|---|---|---|---|---|---|---|---|---|---|---|
| SPDR S&P Regional Banking ETF | KRE | 0.35% | KRE is the largest regional bank ETF and provides exposure to U.S. regional banks. | US$3.48B | -25.49% | 3.39% | S&P Regional Banks Select Industry Index | 19 Jun 2006 | State Street Global Advisors | 143 | New York Community Bancorp (4.85%)M&T Bank Corporation (3.22%)Regions Financial Corporation (3.02%)Truist Financial Corporation (2.81%)Huntington Bancshares Incorporated (2.76%) |
| iShares US Regional Banks ETF | IAT | 0.39% | Gives you exposure to small and mid cap regional banks in U.S. | US$0.8B | -26.94% | 4.46% | Dow Jones U.S. Select Regional Banks Index | 1 May 2006 | BlackRock | 34 | PNC Financial Services Group (13.92%) US Bancorp (12.41%) Truist Financial Corporation (11.85%) M&T Bank Corp (5.87%) Regions Financial Corporation (4.7%) |
| Invesco KBW Regional Banking ETF | KBWR | 0.35% | KBWR offers additional diversification into thrift banks, on top of regional banks. | US$64.9M | -18.90% | 3.24% | KBW Nasdaq Regional Banking Index | 1 November 2011 | Invesco | 51 | Cullen/Frost Bankers (4.25%) Commerce Bancshares (3.86%) Webster Financial Corp (3.82%) BOK Financial Corp (3.59%) Prosperity Bancshares Inc (3.36%) |
| First Trust NASDAQ ABA Community Bank Index Fund | QABA | 0.62% | QABA gives you exposure to small and mid-cap regional banks and thrifts listed on the NASDAQ. | US$81M | -19.29% | 3.18% | Nasdaq OMX ABA Community Bank Index | 29 Jun 2009 | First Trust Portfolios | 149 | Commerce Bancshares (3.45%) BOK Financial Corporation (3.21%) South State Corporation (2.89%) Columbia Banking System (2.6%) Bank OZK (2.55%) |
1. SPDR S&P Regional Banking ETF (KRE)
The SPDR S&P Regional Banking ETF gives you exposure to a portfolio of regional banks in the U.S.
It tracks the S&P Regional Banks Select Industry Index which follows the performance of regional banks within the S&P Total Market Index.
Key information about the SPDR S&P Regional Banking ETF (KRE)
- Inception Date: 19 Jun 2006
- Expense Ratio: 0.35%
- AUM: US$3.48B
- No. of holdings: 143
- Yield: 3.39%
Why consider the SPDR S&P Regional Banking ETF (KRE)
If you’re looking for a portfolio focusing solely on U.S. regional banks, KRE is one of the biggest regional bank ETFs out there.
At the point of writing, these are the top 10 holdings in KRE ETF:
| Company | Ticker | Weightage (%) |
| New York Community Bancorp | NYCB | 4.85 |
| M&T Bank Corporation | MTB | 3.22 |
| Regions Financial Corporation | RF | 3.02 |
| Truist Financial Corporation | TFC | 2.81 |
| Huntington Bancshares Incorporated | HBAN | 2.76 |
| Citizens Financial Group | CFG | 2.76 |
| Western Alliance Bancorp | WAL | 2.7 |
| Zions Bancorporation N.A | ZION | 2.62 |
| East West Bancorp Inc. | EWBC | 2.56 |
| Cullen/Frost Bankers Inc. | CFR | 2.47 |
As of 31 May 2023, this was the historical performance of KRE as reported by SSGA:
2. iShares US Regional Banks ETF (IAT)
The iShares US Regional Banks ETF (IAT) gives you exposure to small and mid cap U.S. regional banks. It tracks the Dow Jones U.S. Select Regional Banks Index.
Key information about the iShares US Regional Banks ETF (IAT)
- Inception Date: 1 May 2006
- Expense Ratio: 0.39%
- AUM: US$0.8B
- No. of holdings: 34
- Yield: 4.46%
Why consider the iShares US Regional Banks ETF (IAT)
IAT ETF gives you exposure to the small and mid cap U.S. regional banks which were most affected by the recent banking crisis.
Whether you’re looking to ride a potential recovery or short the industry, this might be your best bet. That said, this regional bank ETF provides one of the highest dividend yields.
At the point of writing, these are the top 10 holdings in IAT ETF:
| Company | Ticker | Weightage (%) |
| PNC Financial Services Group | PNC | 13.92 |
| US Bancorp | USB | 12.41 |
| Truist Financial Corporation | TFC | 11.85 |
| M&T Bank Corp | MTB | 5.87 |
| Regions Financial Corporation | RF | 4.7 |
| Fifth Third Bancorp | FITB | 4.67 |
| Huntington Bancshares Incorporated | HBAN | 4.38 |
| First Citizens Bancshares | FCNCA | 4.13 |
| Citizens Financial Group | CFG | 2.78 |
| Keycorp | KEY | 3.85 |
As of 31 May 2023, this was the historical performance of IAT as reported by BlackRock:
3. Invesco KBW Regional Banking ETF (KBWR)
The Invesco KBW Regional Banking ETF (KBWR) tracks the KBW Nasdaq Regional Banking Index which gives you exposure to U.S. regional banks and thrift companies.
Key information about the Invesco KBW Regional Banking ETF (KBWR)
- Inception Date: 1 November 2011
- Expense Ratio: 0.35%
- AUM: US$64.9 M
- No. of holdings: 51
- Yield: 3.24%
Why consider the Invesco KBW Regional Banking ETF (KBWR)
KBWR offers additional diversification into thrift banks which offer savings accounts and home mortgages for consumers. They are also referred to as Savings and Loan Associations (S&Ls).
At the point of writing, these are the top 10 holdings in KBWR ETF:
| COMPANY | TICKER | % OF FUND |
| Cullen/Frost Bankers Inc | CFR | 4.25 |
| Commerce Bancshares Inc/MO | CBSH | 3.86 |
| Webster Financial Corp | WBS | 3.82 |
| BOK Financial Corp | BOKF | 3.59 |
| Prosperity Bancshares Inc | PB | 3.36 |
| New York Community Bancorp Inc | NYCB | 3.10 |
| Home BancShares Inc/AR | HOMB | 2.51 |
| Community Bank System Inc | CBU | 2.26 |
| Popular Inc | BPOP | 2.25 |
| Bank OZK | OZK | 2.24 |
As of 31 May 2023, this was the historical performance of KBWR as reported by Invesco:
4. First Trust NASDAQ ABA Community Bank Index Fund (QABA)
The First Trust NASDAQ ABA Community Bank Index Fund (QABA) tracks the Nasdaq OMX ABA Community Bank Index. The QABA gives you exposure to small and mid cap banks and thrifts listed on the NASDAQ.
Key information about the First Trust NASDAQ ABA Community Bank Index Fund (QABA)
- Inception Date: 29 Jun 2009
- Expense Ratio: 0.62%
- AUM: US$81M
- No. of holdings: 149
- Yield: 3.18%
Why consider the First Trust NASDAQ ABA Community Bank Index Fund (QABA)
The QABA is a regional bank ETF on this list that focuses on small to mid-cap regional banks and thrifts that are listed on the NASDAQ. That said, it has the highest expense ratio at 0.62%.
At the point of writing, these are the top 10 holdings in QABA ETF:
| Company | Ticker | Weightage (%) |
| Commerce Bancshares | CBSH | 3.45 |
| BOK Financial Corporation | BOKF | 3.21 |
| South State Corporation | SSB | 2.89 |
| Columbia Banking System | COLB | 2.6 |
| Bank OZK | OZK | 2.55 |
| United Bankshares | UBSI | 2.41 |
| Wintrust Financial Corporation | WTFC | 2.33 |
| Pinnacle Financial Partners | PNFP | 2.3 |
| First Financial Bankshares | FFIN | 2.27 |
| Old National Bancorp | ONB | 2.16 |
As of 31 May 2023, this was the historical performance of QABA, as reported by First Trust Portfolios:
⚠️Beware of the risks in the banking sector!
While the US banking crisis has seemed to be well managed at the moment, we do not know of the actual situations within the banks.
With the possibility of another round of rate hikes on the horizon, we could see more banks defaulting if they are not able to manage their deposits well or if the rate hikes are too aggressive.
To give you an idea of the risks and volatility of regional bank ETFs, here’s a comparison of their Sharpe Ratio* against the XLF Financials ETF and the broad S&P 500 index:
| ETF | Ticker | Stdev | Max Drawdown | Sharpe Ratio |
| SPDR S&P 500 ETF Trust | SPY | 14.27% | -23.93% | 0.88 |
| Financial Select Sector SPDR ETF | XLF | 18.63% | -31.75% | 0.67 |
| SPDR S&P Regional Banking ETF | KRE | 25.24% | -45.91% | 0.34 |
| iShares US Regional Banks ETF | IAT | 24.03% | -48.10% | 0.33 |
| Invesco KBW Regional Banking ETF | KBWR | 24.01% | -43.63% | 0.36 |
| First Trust NASDAQ ABA Community Bk ETF | QABA | 21.81% | -40.44% | 0.35 |
*In general, if all things are equal, the lower the standard deviation, the lower the volatility. And the higher the Sharpe Ratio, the lower the risk.
While the risk of more bank defaults remains low at the moment, I would avoid regional bank ETFs currently as a long term investor.
That said, if you are bullish on the recovery of banks, or are looking for regional bank ETFs to short, do understand the risks that you would be exposed to!
Which regional bank ETF is best?
If you’re looking for a broad exposure to regional banks, the KRE ETF offers that for a relatively low cost. If you want exposure to both regional banks and thrifts (which could be slightly riskier), consider the KBWR ETF.
Do remember to do your own due diligence and understand the risks that you could be exposed to if you’re investing solely in regional banks.
In the current market, it would be safer to consider financials ETFs that give you a good exposure to bank stocks while owning a more diversified portfolio.
p.s. new to ETF investing? read this guide!
