A smart beta exchange traded fund, the SPDR S&P Capital Markets ETF (KCE) debuted on 11/08/2005, and offers broad exposure to the Financials ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
KCE is managed by State Street Global Advisors, and this fund has amassed over $484.25 million, which makes it one of the average sized ETFs in the Financials ETFs. KCE seeks to match the performance of the S&P Capital Markets Select Industry Index before fees and expenses.
The S&P Capital Markets Select Industry Index represents the capital markets segment of the S&P Total Market Index.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
With one of the least expensive products in the space, this ETF has annual operating expenses of 0.35%.
KCE's 12-month trailing dividend yield is 1.59%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
Representing 100% of the portfolio, the fund has heaviest allocation to the Financials sector.
Looking at individual holdings, Stonex Group Inc (SNEX) accounts for about 2.09% of total assets, followed by Robinhood Markets Inc A (HOOD) and Donnelley Financial Solution (DFIN).
KCE's top 10 holdings account for about 18.96% of its total assets under management.
Performance and Risk
The ETF has gained about 0.04% and is up roughly 22.82% so far this year and in the past one year (as of 05/28/2025), respectively. KCE has traded between $107.76 and $148.51 during this last 52-week period.
The fund has a beta of 1.22 and standard deviation of 23.33% for the trailing three-year period, which makes KCE a high risk choice in this particular space. With about 64 holdings, it effectively diversifies company-specific risk.
Alternatives
SPDR S&P Capital Markets ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.
IShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI) tracks Dow Jones U.S. Select Investment Services Index. The fund has $1.33 billion in assets. IAI has an expense ratio of 0.40%.
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.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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SPDR S&P Capital Markets ETF (KCE): ETF Research Reports iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI): ETF Research Reports Donnelley Financial Solutions (DFIN): Free Stock Analysis Report StoneX Group Inc. (SNEX): Free Stock Analysis Report Robinhood Markets, Inc. (HOOD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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