On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the SPDR S&P Insurance ETF (KIE) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund on point for today. The expert to talk about it. Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds with the help of Todd Rosenbluth. He’s head of research at VettaFi. And if you go to VettaFi.com, you will find all the tools you need to be a better, smarter, savvier investor in exchange traded funds.
Todd Rosenbluth, great to chat with you again.
Todd Rosenbluth: It’s great to be with you again, Chuck.
Chuck Jaffe: Your ETF of the Week is…
Todd Rosenbluth: The SPDR S&P Insurance ETF. KIE.
Chuck Jaffe: KIE, the SPDR S&P Insurance ETF. Insurance … interesting space at a time when rates are holding up and talked about in flux and more. So, why insurance now?
Todd Rosenbluth: So the financial services sector has been in the spotlight. It’s earnings season as we’re recording this — that just kicked off. We’ve seen some volatility out of the banks. We think insurance is a more stable way of getting exposure to the financial sector. Strong, high-quality companies, consistent earnings, really strong balance sheets. We think this is a relatively safe way of getting financial exposure.
And this State Street Global Advisors ETF is well-diversified towards some of the leading companies.
Chuck Jaffe: So, in this case, is this kind of a recommendation that also comes with a portfolio recommendation? In other words, you’d rather be in insurance than maybe broad financials in banks, so you’re tilting in this direction and you’re cutting back in the other? I mean, the ETF of the Week is not “get rid of that other fund,” but is there a little bit of that here?
Todd Rosenbluth: Most investors will have exposure to the financial sector through broadly diversified ETFs, or even perhaps a sector ETF. They tend to not focus on these industry-oriented ETFs like insurance, like biotechnology, like semiconductors in a dedicated manner.
But we think the insurance space — which is the fourth largest industry within that financial sector — has quite strong fundamentals, and the valuation doesn’t fully reflect that based on the data that we’ve seen and that we have access to at VettaFi. So we think you could complement your core S&P 500 strategy by favoring the insurance industry to tilt towards financials in a higher-quality manner.
Chuck Jaffe: When you make a tilt like this, how much of a portfolio are you willing to let it be?
Todd Rosenbluth: Financials is one of the largest sectors within the broader S&P 500 — certainly not as large as the technology sector, but it’s a double digit weighting overall. This is to tilt. This is to add a couple of percentage points to favor one of the industry’s more defensive yet cyclical industry. And I realize those two things fight against each other. But financials tends to be cyclical in general, and insurance tends to be a more defensive way within that cyclical sector.
So, a couple hundred basis points is probably where you’d want to go. This complements the SPDR S&P 500 ETF Trust (SPY) or other large-cap core strategies.
Chuck Jaffe: Because you’re making a tilt here — tilts tend to be somewhat temporary. Now, we’ve talked about the fact that you’re not necessarily a trend follower. This fund is above its 200-day moving average. But what’s it going to take if it’s not a 200-day moving average play, but it’s a lean into it? What will you be looking to, to say, OK, and when this happens, the tilt’s off?
Todd Rosenbluth: We think the insurance industry can do relatively well within the financial sector given the interest rate environment we’re in. Right now, the Fed is on pause. And it’s not clear how long the Fed will continue to stay stable before they start cutting interest rates. There are other areas within the financial sector that can do better. If rates are cut more meaningfully, they can have greater opportunities and certainly other areas within the broader economy and broader S&P 500.
So this is probably for the next few months. It’s a good place to be in insurance, given the economic environment, given what’s happening from a monetary policy perspective. Then it’s is probably worth a couple of months, three months later to revisit this. Does this still make sense for having an overweight within your portfolio?
Chuck Jaffe: This is not the only insurance ETF. Now that said, long track record, really good in this space. All of the metrics that most people would look at [indicate]this is going to pass, but one of the things we don’t spend a lot of time talking about at times, but I kind of want to talk about here, is that when you’re talking about the SPDR, S&P, anything but in this case, KIE, the insurance ETF, you’re kind of talking about a bit of a commodity ETF
Not commodities in the terms of commodities, like are you buying real assets, but a commodity in the fact of, if I said to somebody, hey, you need to get an ETF in financial services. They go, OK, so you get the SPDR financial services, you get the SPDR insurance, etc. In what cases do you look and go, yes, I kind of want the default big brand name choice versus the XYZ boutique fund take on the insurance industry?
Todd Rosenbluth: So yes, State Street Global Advisors is one of the top ETF providers. They have the largest ETF, SPY. What appeals to me about this ETF is its construction. So this SPDR S&P ETF is going to be equally weighted. So you’re spreading that risk around. You’re not concentrating on a handful of mega-cap companies which might have fundamental challenges.
If your call is on the industry doing well, an equally weighted approach can make a lot of sense. You get small, mid, and large companies within the overall portfolio. For example, if you own the Financial Select Sector SPDR ETF (XLF), you have a double digit weighting within insurance. But almost all of that comes from Berkshire Hathaway. That’s not necessarily what people think of as insurance companies.
You’re not getting the benefits of diversification. With KIE, the SPDR S&P Insurance ETF, you’re getting the benefits of stock-specific diversification. And I think that’s quite appealing when you’re overweighting towards one industry group.
Chuck Jaffe: It is. And then the other things that are appealing — the timing and the industry — it is why KIE. The SPDR S&P Insurance ETF is the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff. We’ll talk again next week.
Todd Rosenbluth: I’ll see you next week, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I am Chuck Jaffe. You can learn all about my hour-long show by going to your favorite podcast app, or by going to MoneyLifeShow.com.
To learn all about exchange-traded funds, check out VettaFi.com. They have a full suite of tools there that’s going to help you be a better, smarter, and savvier investor in exchange-traded funds. Do comparisons and weigh things out. Make those choices. They’re on Twitter at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, he’s on Twitter or X at @ToddRosenbluth. The ETF of the Week is here for you every Thursday, so make sure you don’t miss one by following along on your favorite podcast app. And we’ll see you next week, and until then, happy investing, everybody!
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