Similar Names, but These Bank ETFs Aren’t Twins

The exchange traded funds universe is littered with pairs (or more) of funds that have similar sounding names that, in reality, are far from being relatives let alone twins.

A familiar example involves the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), which tracks the FTSE Emerging Index, and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which follows the MSCI Emerging Markets Index. More recently, the growth of low volatility ETFs has prompted closer examination of the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV). [A Familiar ETF Conundrum]

With some investors looking to financial services ETFs as a way of profiting rising interest rates, a comparison of some well-known funds that purport to be regional bank ETFs is in order. Of course, the SPDR S&P Regional Banking ETF (NYSEArca: KRE), the largest regional bank ETF is involved.

As it should be. When Treasury yields jumped in 2013, KRE surged 47.5%. Amid the 2014 yield retreat, the ETF rose just 1.8% while the S&P 500 climbed 13.5%. KRE’s holdings have an average beta of +0.44 to moves in the US 10 Year Treasury. [A Breakout for Regional Bank ETFs]

Advisors and investors often compare KRE to the iShares U.S. Regional Banks ETF (NYSEArca: IAT). KRE and IAT are a case study in ETFs with similar names, but very different holdings, weights to those holdings and results.

KRE and IAT “may have similar-sounding names and offer investors exposure to the same sector, but a closer look shows they are different in at least one key way: One of the funds is making an outsize bet on just two companies. That difference becomes apparent when you look at the funds’ results. Last year, the SPDR fund rose less than 2% after soaring about 47% in 2013. The iShares fund, by contrast, returned 7.5% last year after a 38% gain the prior year,” according to the Wall Street Journal.