The SPDR S&P Regional Banking ETF (NYSE: KRE) provides equal-weight exposure to US regional banks, offering investors a liquid way to track the performance of the domestic banking sector and its sensitivity to interest rates, credit conditions and the US economy. The ETF saw investors withdraw a net US$183.9 million, reducing the fund’s assets by 3.7% to $4.75 billion; however, note that the fund has attracted net inflows of $656.8 million in the past year.
The US Major Banks (BKX) have significantly outperformed regional banks (KRE) over the past five years, with the gap widening decisively after the Silicon Valley Bank crisis in March 2023. The chart plots indexed total returns (base = 100, July 17, 2023) for both indices, making the outperformance gap visually clear. Key takeaways:
- The Performance Gap is huge: Over the full three years, BKX returned more than +150% vs. KRE’s almost +90% – well ahead of the ASX200 banking sector.
- Post-election surge (Nov 2024): Both indices spiked sharply on deregulation expectations, but the BKX led the advance and continued to outperform.
- Tariff shock (Apr 2025): Both sold off sharply, but the KRE fell more steeply, reflecting regional banks’ greater sensitivity to credit and recession risk.
- 2025–2026 recovery divergence: BKX recovered strongly and pushed to new highs driven by major bank earnings beats this week.
- Structural underperformance: The gap has been persistent and widening — major banks benefit disproportionately from capital markets activity, trading revenues, and AI-driven efficiency gains. Greater scale = better returns, with the same true locally.
Current money flows suggest investors are still comfortable deploying capital into mainstay banks over their regional peers, e.g. in July the Invesco KBW Bank ETF (large-cap banks) and SPDR S&P Bank ETF (broad banks) ETFs have enjoyed combined inflows of more than US$350 in July.
Regional banks may not be leading the market, but they remain in a strong uptrend, testing post-COVID highs overnight as softer inflation reinforced expectations for lower interest rates. The action across the US banks provides no catalyst for MM to consider the underperforming ASX regionals at this point in time.
- We are bullish towards the KRE ETF into Christmas, targeting a break of US$80 in the coming months.
