The SPDR S&P 500 ETF Trust and what’s in it

The SPDR S&P 500 ETF Trust is one of the most popular funds. It aims to track the Standard & Poor’s (S&P) 500 Index, which includes 500 large-cap US stocks. These stocks are selected by a committee based on market size, liquidity and industry. The S&P 500 is one of the main benchmarks for the US stock market and indicates the financial health and stability of the economy. Also known as SPY ETF, the fund was established in January 1993.

Key points to remember

  • The SPDR S&P 500 ETF Trust is one of the most popular funds that aims to track the S&P 500 Index, which includes 500 large-cap US stocks.
  • SPY was the first publicly traded index fund in the United States.
  • About a quarter of the SPY ETF is invested in the information technology sector.
  • The SPDR S&P 500 ETF Trust has generated an average annual return of just under 10% since inception.

Understanding the SPY ETF

As stated above, the SPY ETF was created on January 22, 1993. It is an exchange-traded fund (ETF) that tracks the S&P 500 index. It is often considered the first ETF to be listed and remains one of the most actively traded, even with the advent of competing S&P 500 ETFs. In fact, it is considered the original fund that tracks the S&P 500.

The ETF was launched in 1993 and had just $6.53 million in assets under management (AUM). After a rocky start and some initial difficulty finding investors, it grew to over $1 billion in assets under management three years later. As of July 6, 2023, the ETF trust had extraordinary assets of $415.86 billion.

SPY is listed on the Arca Exchange of the New York Stock Exchange (NYSE), and investors can trade this ETF on multiple platforms. The SPDR S&P 500 ETF Trust’s trustee is State Street Bank and Trust, and its distributor is ALPS Distributors. Because ETF shares trade similar to stocks, investors can buy and sell SPY shares through their broker throughout the day, including shorting them.

The price of a SPY stock is supposed to be one tenth of that of the S&P 500 index. So if the S&P is at a level of 4,000, then a SPY stock should be trading near $400.

SPY turned 30 on January 22, 2023, celebrating the milestone by remaining the largest ETF tracking the S&P 500 Index.

SPY ETF Portfolio Structure and Costs

Due to its relative age, the ETF is constructed as a Unit Investment Trust (UIT). It is therefore a fixed portfolio that forms units that can be created and redeemed from the issuer. Because of this structure, the SPY fully replicates the S&P 500 Index, holding all members of the underlying index at their target weightings.

The SPY and other index ETFs offer investors a way to own the entire index by holding a single security at a low cost. As of July 9, 2023, SPY has an expense ratio of 0.0945%. Although this ratio is low, it is not the lowest among other ETFs that track the S&P 500 index. SPY’s expense ratio is more than three times the expense ratio of Vanguard S&P 500 ETF (VOO) of 0.03%. Keep in mind that these fees do not include brokerage fees or commissions.

Several ETFs track the S&P 500 Index. Investors considering such an ETF should consider the expense ratio, tracking error, and liquidity of the ETF before choosing one to invest in.

Top holdings of the SPY ETF

The SPY is a well-diversified basket of assets, which spreads its holdings across several sectors. The top five listed below are as of June 1, 2023:

  • Computer science: 28.23%
  • Health care: 13.30%
  • finance: 12.46%
  • Consumer Discretionary: 10.70%
  • Communication Services: 8.49%

The SPDR S&P 500 ETF Trust allocates nearly all of its funds to common stocks, which are included in the S&P 500 Index. Its current top 10 holdings are in the following companies:

Top 10 SPY ETF Holdings (As of July 6, 2023)
investment company)% of spy wallet weight
Apple (AAPL)7.70%
Microsoft (MSFT)6.89%
Amazon (AMZN)3.11%
NVIDIA (NVDA)2.83%
Tesla (TSLA)2.02%
Alphabet—Class A (GOOGL)1.94%
Metaplatforms—Class A (META)1.75%
Alphabet—Class C (GOOG)1.68%
Berkshire Hathaway—Class B (BRK.B)1.65
United Health (UNH)1.19%
Source: State Street Global Advisors

Performance ETF SPY

With a four-star Morningstar rating, SPY’s returns closely tracked the S&P 500, an index that has outperformed the average return of other large-cap funds over the past decade. The SPDR S&P 500 ETF Trust (SPY) has generated a three-year average return of 12.78% as of May 31, 2023. Based on 10-year data, the fund has generated average annual returns of 11.85%. Since inception of the SPDR S&P 500 ETF Trust, the fund has achieved average annual returns of 9.73%.

This, of course, tracks the performance of the S&P 500 with a beta of nearly 1.00. Importantly, the SPY ETF, as it fully replicates the index, has a very low relative tracking error – only -0.04% as of June 1, 2023.

The SPY turns 30

The SPY celebrated its 30th anniversary on January 22, 2023, remaining the quintessential S&P 500 ETF despite having higher management fees than its younger rivals. While the SPY was not a new strategy when it was launched in 1993, it offered a revolutionary way to invest by trading similar to a stock market.

Besides the first-mover advantage, several factors cemented the SPY’s longevity:

  • The fund has benefited from an increasing shift towards passive investment management. Although actively managed funds have taken the lion’s share of net inflows for most of the past 30 years, this trend changed in 2018. And in 2021, the market share of US equity funds in passive funds reached 54%, partly due to the success of the long-term SPY. long-term and growing AUM.
  • The S&P’s stellar performance, driven by large-cap tech stocks in the mid to late 1990s and after the Great Recession, helped the SPY continue to attract new flows. From 1995 to 1999, the blue chip index gained an average of 28% per year, while from 2009 to 2022 it gained more than 400%.

The ETF’s $415.86 billion asset base, coupled with an average daily trading volume (ADTV) of approximately $30.24 billion, makes the fund popular with investors who want exposure to cost effect in the S&P 500 and traders seeking deep liquidity. The broad appeal of SPY ensures that it will remain at the forefront of financial markets for the foreseeable future.

Does the SPDR S&P 500 ETF Trust pay a dividend?

Is SPY an equity fund or an exchange traded fund?

The SPY is an ETF. It is the generic name for a type of security that groups or tracks several stocks within an index, sector or other group. SPDRs are a specific type of ETF issued by State Street Global Advisors that tracks a certain index, such as the S&P 500. Although ETFs can trade like common stocks, they represent a portfolio of stocks and not just a business.

What does SPDR mean?

SPDR stands for Standard & Poor’s Depositary Receipt. SPDR ETFs have a fixed number of stocks that are traded and traded like stocks on the open market.

Is the SPDR S&P 500 ETF Trust a good investment?

Yes. The SPY ETF diversifies exposure to the US stock market and is suitable for investors willing to take on a moderate level of risk. Since it tracks the S&P 500 Index, it is often a suitable choice for those looking for passive index investing.

How much money is invested in SPY?

As of July 6, 2023, the SPY had approximately $415.86 billion in assets under management.

The essential

The SPDR S&P 500 ETF Trust offers investors an efficient way to diversify their exposure to the US stock market without having to invest in multiple stocks. Therefore, the SPY is suitable for all investors who wish to include US equities in their portfolio while taking only a moderate level of risk.

That being said, since the SPDR S&P 500 ETF Trust tracks 500 large-cap stocks in the United States, it carries a myriad of risks, such as market risk, country risk, currency risk, economic risk, and currency risk. interest rate risk. Investors should be aware of global and US economic data, which could affect fund performance.

Leave a Comment