XLF vs. KRE: Which State Street Financial Sector ETF Is the Better Buy
Key Points
The State Street Financial Select Sector SPDR Fund (XLF) charges a significantly lower expense ratio than the State Street SPDR S&P Regional Banking ETF (KRE).
KRE provides exposure to 158 regional banks, whereas XLF focuses on 76 large-cap financial firms.
Over the last five years, XLF has experienced a much smaller maximum drawdown than KRE.
Investors looking for financial sector exposure typically need to choose between broad diversification and more concentrated sub-sector bets. The State Street Financial Select Sector SPDR ETF (NYSEMKT:XLF) spreads its holdings across large-cap banks, insurers, and payment companies, while the State Street SPDR S&P Regional Banking ETF (NYSEMKT:KRE) zeroes in on regional lenders.
Snapshot (cost & size)
| Metric | KRE | XLF |
|---|---|---|
| Issuer | State Street | State Street |
| Expense ratio | 0.35% | 0.08% |
| 1-yr return (as of Aug. 26, 2026) | 17.10% | 10.23% |
| Dividend yield | 2.10% | 1.42% |
| Beta | 1.11 | 0.72 |
| AUM | $4.4 billion | $57.9 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
Cost-conscious investors may prefer XLF's expense ratio of 0.08%, which is notably cheaper than KRE's 0.35%. KRE pays the higher dividend yield, though -- 2.10% versus XLF's 1.42%.
Performance & risk comparison
| Metric | KRE | XLF |
|---|---|---|
| Max drawdown (5 yr) | (52.71%) | (25.82%) |
| Growth of $1,000 over 5 years (total return) | $1,275 | $1,618 |
Launched in 1998, XLF targets the financial segment of the S&P 500 with a portfolio of 76 holdings. Its largest positions include JPMorgan Chase (NYSE:JPM) at 11.7%, Berkshire Hathaway Inc (NYSE:BRKB) at 11.7%, and Visa (NYSE:V) at 7.6%. The fund leans heavily into large-cap names across banking, insurance, and capital markets.
KRE tracks the S&P Regional Banks Select Industry Index and holds 158 stocks. Its top holdings include Cullen/Frost Bankers (NYSE:CFR) at 1.4%, Pinnacle Financial Partners (NYSE:PNFP) at 1.4%, and Home BancShares (NYSE:HOMB) at 1.4%. The fund provides equal-weighted exposure to regional banks. KRE was launched in 2006.
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Which looks like the better buy
The choice between XLF and KRE mostly comes down to how much risk an investor wants to take for potentially higher returns.
Regional banks like those held by KRE tend to be more sensitive to local economic conditions, interest rate swings, and credit cycles than the diversified giants that dominate XLF -- which helps explain why KRE's five-year maximum drawdown of 52.7% is roughly double XLF's 25.8%. That volatility isn't unusual for regional banking as a group. Smaller lenders' business results tend to be affected more severely than those of megacap financial institutions during a downturn.
That's also a reminder that a fund's recent return doesn't always tell the whole story. KRE's higher one-year return looks appealing on the surface, but the fund's higher beta means those results come with more volatility, plus KRE's higher expense ratio can eat into an investor's returns over time. XLF, by contrast, offers a steadier, lower-cost way to own the financial sector's biggest names, including several -- like JPMorgan and Berkshire Hathaway -- that operate well beyond traditional banking.
For investors seeking core, diversified exposure to the financial sector with lower fees, XLF is the more conventional pick. Those willing to accept more volatility for a shot at outsize gains, along with a richer dividend yield, may find KRE's regional bank focus worth the trade-off -- especially if they have a specific view on regional banks' prospects, such as improving credit conditions or net interest margins.
It's also worth remembering that both funds are sector bets, not core holdings. Investors who already own a broad S&P 500 or total-market index fund are getting financial-sector exposure at normal market weights without taking on an extra layer of concentration. For beginners, or anyone who doesn't want the responsibility of monitoring a single sector's cycle, a plain S&P 500 index fund may be the simpler and more appropriate way to stay invested in financials over time.
JPMorgan Chase is an advertising partner of Motley Fool Money. Andy Gould has positions in Berkshire Hathaway and Visa. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, and Visa. The Motley Fool has a disclosure policy.