Exploring the SPDR S&P 500 ETF Trust, Known as SPY ETF, and Its Portfolio Holdings

The SPDR S&P 500 ETF Trust has become one of the most well-known funds. Its goal is to track the Standard & Poor’s (S&P) 500 Index, which consists of the 500 largest-cap U.S. stocks. The stocks are selected by a panel based on liquidity, market size, and industry. This fund, known as the S&P 500, serves as a major benchmark of the U.S. equity market and reflects the stability and financial health of the country’s economy. The fund, also known as the SPY ETF, was created in January 1993.

Key TAKEAWAYS

• The SPDR S&P 500 ETF Trust is one of the most well-known funds that aims to track the S&P 500 Index, which includes 500 of the largest-cap U.S. stocks.
• SPY was the first index-traded fund to be listed on U.S. exchanges.
• Approximately one-quarter of the SPY ETF’s assets are invested in the information technology sector.
• Since its launch, the SPDR S&P 500 ETF Trust has generated an annualized return of less than 10%.

Learning about the ETF SPY

As mentioned above, the SPY ETF was launched on January 22nd, 1993. It was created as an exchange-traded fund (ETF) that tracks the S&P 500 Index. It is often regarded as the first ETF to be listed and is still one of the most widely traded, despite the introduction of competing S&P 500 ETFs. It is considered to be the first fund to track the S&P 500.

When the ETF was initially launched in 1993, it had only $6.53 million in assets under management (AUM). After a challenging start and difficulties in attracting investors, the trust experienced explosive growth, reaching over $1 billion in AUM within three years. As of May 2023, the ETF trust holds an impressive $375.19 billion in funds.

SPY is listed on the NY Stock Exchange’s (NYSE) Arca exchange, allowing investors to trade the ETF across various platforms. State Street Bank and Trust serves as the trustee for the SPDR S&P 500 ETF Trust, and ALPS Distributors acts as the distributor. Since ETF shares are traded like stocks, investors can buy or sell SPY shares throughout the day and even engage in short selling.

The price of one SPY share is designed to represent one-tenth of the value of the S&P 500 Index. For example, if the S&P 500 has a value of 4,000, the price of an SPY share would be around $400.

SPY ETF Cost Structure and Portfolio Structure

Due to its age, the SPY ETF is designed as a Unit Investment Trust (UIT), which is a fixed portfolio consisting of units that can be created and sold to the issuer. This structure allows the SPY to fully replicate its counterpart, the S&P 500 Index, holding all the members of the index in the intended weights.

The SPY, along with other index ETFs, offers investors the opportunity to have exposure to the entire index through a single security at a certain price. As of May 2nd, 2023, the SPY has an expense ratio of 0.0945 percent. Although this is a relatively low ratio, it is not the lowest among ETFs based on the S&P 500 Index. The expense ratio of the SPY is nearly three times that of the Vanguard S&P 500 ETF (VOO), which has an expense ratio of 0.03 percent. It’s important to note that these fees do not include commissions or fees charged by brokers.

SPY ETF Top Holdings

SPY is a diverse basket of assets that distributes its investments across a variety of sectors. The five most popular stocks as of May 2nd, 2023, are listed below:

• The information technology: 25.86%
• Healthcare: 14.60%
• Financials: 12.92%
• Consumer Disresponsible: 9.92%
• Industrials: 8.56%

The SPDR S&P 500 ETF Trust invests the majority of its funds in common stocks that are part of the S&P 500 Index. The top 10 stocks held by the trust include the following firms:

Source: State Street Global Advisors

SPY ETF Performance

With a 4-star Morningstar rating, SPY’s returns have shown a close correlation with those of the S&P 500, an index that has outperformed the average return of other large-blend funds over the past 10 years. The SPDR S&P 500 ETF Trust (SPY) has achieved an average 3-year yield of 15.05 percent as of May 2, 2023. Based on 10-year trailing data, the fund has generated an average annual yield of 11.97 percent. Since the launch of the SPDR S&P 500 ETF Trust on January 1, 2005, this fund has earned an average annual return of 9.71 percent.

As you can see, the SPY ETF is a direct reflection of the performance of the S&P 500, with a beta of almost 1.00. The most important thing to remember is that the SPY ETF, as it completely replicates an index, has a low relative tracking error of just 0.05 as of May 3, 2023.

SPY turns 30

The SPY celebrated its 30th anniversary on January 22, 2023, as the top S&P 500 ETF, despite having higher management costs compared to its more recent competitors. Although the SPY was not a novel approach when it was first launched in 1993, it introduced an innovative investment strategy by trading similar to stocks on an exchange.

In addition to the first-mover advantage, several factors have contributed to the SPY’s long-term viability:

• The fund has benefited from a shift towards passive investing. While active fund managers had been receiving the majority of net flows over the past 30 years, this trend changed in 2018. In 2021, the market share of passive funds in the U.S. equity fund market surpassed 54%, largely due to SPY’s strong long-term track record and increasing assets under management (AUM).
• The outstanding performance of the S&P, driven by large-cap tech stocks in the late 1990s and after the Great Recession, has attracted significant inflows to the SPY. From 1995 to 1999, the blue-chip index grew by an annual rate of about 28%. Between 2009 and 2022, it grew by over 400%.

With an asset base of $375 billion and an Average Daily Trading Volume (ADTV) of around $30 billion, the SPY remains popular among investors seeking cost-effective access to the S&P 500, as well as traders who require high liquidity. The broad appeal of the SPY ensures that it will continue to be a prominent player in the financial market for a long time to come.

Do this SPDR S&P 500 ETF Trust Pay Dividends?

Yes, on May 2nd, 2023, the 12-month dividend yield for SPY was 1.57%.

Is SPY an exchange-traded fund or a Stock or Exchange-Traded Fund?

SPY is an ETF. It can be described as an ETF, which is a general term for a security that tracks or aggregates various stocks within an industry, index, or other grouping. SPDRs are a specific type of ETF issued by State Street Global Advisors, and they track specific indexes like the S&P 500. ETFs can be traded like normal shares of stock and represent a diverse range of stocks, rather than focusing on a single company.

What Is SPDR Mean?

SPDR is the acronym for Standard and Poor’s Depositary Receipt. SPDR ETFs are backed by a fixed amount of shares that are traded and exchanged like stocks in the marketplace.

Are this the SPDR S&P 500 ETF Trust an investment you can trust?

Yes, the SPY ETF offers diversification through its exposure to the U.S. stock market and can be a good choice for investors who are willing to accept a moderate amount of risk. Being a part of the S&P 500 Index, it is often a good option for those looking to take a passive approach to index investing.

How much money is invested into the SPY?

On May 2nd, 2023, the SPY had approximately $375.19 billion in assets under management.

The Bottom Line

The SPDR S&P 500 ETF Trust provides investors with a reliable option to diversify their portfolios in the U.S. equity market without needing to invest in multiple stocks. This is why the SPY is a good choice for investors looking to incorporate U.S. equities into their portfolio while taking on only moderate levels 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 multitude of risks, such as market risk, country risk, currency risk, economic risk, and risks associated with interest rates. Investors must be aware of global as well as U.S. economic data that could impact the performance of the fund.