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

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide 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.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Even though this space provides many choices to investors–think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting–not all have been able to deliver first-rate results.

Fund Sponsor & Index

KIE is managed by State Street Global Advisors, and this fund has amassed over $890.09 million, which makes it one of the average sized ETFs in the Financials ETFs. This particular fund, before fees and expenses, seeks to match the performance of the S&P Insurance Select Industry Index.

The S&P Insurance Select Industry Index represents the insurance segment of the S&P Total Market Index.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.35% for this ETF, which makes it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.34%.

Sector Exposure and Top Holdings

It is important to delve into an ETF’s holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

KIE’s heaviest allocation is in the Financials sector, which is about 100% of the portfolio.

When you look at individual holdings, Erie Indemnity Company Cl A ERIE accounts for about 2.46% of the fund’s total assets, followed by Ryan Specialty Holdings Inc RYAN and Kinsale Capital Group Inc KNSL.

Its top 10 holdings account for approximately 22.7% of KIE’s total assets under management.

Performance and Risk

So far this year, KIE has added roughly 24.48%, and was up about 31.63% in the last one year (as of 09/16/2024). During this past 52-week period, the fund has traded between $41.63 and $56.48.

The ETF has a beta of 0.84 and standard deviation of 18.17% for the trailing three-year period, making it a medium risk choice in the space. With about 51 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Insurance ETF is an excellent option for investors seeking to outperform the Financials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco KBW Property & Casualty Insurance ETF KBWP tracks KBW Nasdaq Property & Casualty Index and the iShares U.S. Insurance ETF IAK tracks Dow Jones U.S. Select Insurance Index. Invesco KBW Property & Casualty Insurance ETF has $333.52 million in assets, iShares U.S. Insurance ETF has $709.73 million. KBWP has an expense ratio of 0.35% and IAK charges 0.39%.

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.

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