The latest offering from State Street, SPDR KBW Mortgage Finance ETF (KME), began trading today. The new ETF is designed to track a Keefe, Bruyette & Woods (KBW) index of the 24 largest mortgage finance companies listed on U.S. exchanges. KME is the first new equity ETF in the SPDR family since last July, when the SPDR international sector ETFs were launched. The five launches earlier this year were all bond ETFs.

Like the rest of the financial services sector, the performance of the underlying index had a rough time this past year. At the end of the first quarter (March 31, 2009), the index was down -9.7% year-to-date and off -62.5% for the past twelve months.

According to the fact sheet, the five largest holdings are Fidelity National Financial (FNF) at 8.3%, New York Community Bancorp (NYB) 8.2%, Hudson City Bancorp (HCBK) 8.0%, D.R. Horton (DHI) 6.1%, and Lender Processing Services (LPS) 5.6%. The index has a current dividend yield of 3.8%, and the ETF will have a 0.35% expense ratio.

This is the fifth member of the SPDR KBW lineup, which targets various subsets of the financial services sector. The other four products are SPDR KBW Banking (KBE), SPDR KBW Regional Banking (KRE), SPDR KBW Capital Markets (KCE), and SPDR KBW Insurance (KIE).

While this is the first ETF to target mortgage-related equities, there are other ETFs that hold mortgage-related debt securities: SPDR Barclays Mortgage Backed Bond (MBG), iShares Barclays MBS Bond (MBB), and iShares Barclays Agency Bond (AGZ).