Proprietary Data Insights
Financial Pros Large-Cap Equity ETF Searches in the Last Month
🧐 SPY-ing on Some Funds
In 2003, just 276 ETFs existed.
At the end of 2022, there were 8,754 ETFs globally.
Yet the oldest ETF, the SPDR S&P 500 ETF Trust (SPY), which started trading in 1993, remains the most popular and actively traded.
ETFs rose in popularity as an alternative to mutual funds.
Both have roughly equivalent functions. The big difference is liquidity.
You can trade in and out of an ETF like a stock, while mutual funds come with more restrictions and are always valued based on closing prices.
With $382.1 billion in assets under management and given the popularity of the S&P 500, SPY is a common benchmark for U.S. stocks.
Despite all the crazy price action it’s had in 2023, SPY remains financial pros’ most searched ticker in our proprietary Trackstar database, not just among ETFs, but counting individual stocks too!
So today, we’ll dive into the popular ETF to make sure folks understand its benefits and drawbacks. We’ll also look at some alternatives.
SPDR S&P 500 ETF Trust
The SPDR S&P 500 ETF Trust attempts to track the investment results of an index of stocks in the S&P 500. The S&P 500 is a diversified large-cap U.S. index holding companies in 11 common sectors.
Many asset managers use put options on SPY, betting against the ETF as a hedge against losses in their basket of stocks.
This allows them to create “market-neutral” positions, whereby they effectively eliminate market risk and rely only on a stock’s relative outperformance.
Key Facts About SPY
SPY’s top 10 holdings make up approximately 25.6% of its weight.
Source: State Street
Apple (AAPL) is the fund’s largest holding at 6.6%, followed by Microsoft (MSFT) at 5.9% and Amazon.com (AMZN) at 2.6%.
27.5% of the fund consists of information technology stocks, followed by healthcare at 14.4%, finance at 11.6%, and consumer discretionary at 10.7%.
Source: State Street
SPY began trading in January 1993. It’s delivered an average annualized return of 9.7% since its inception. It has a cumulative return of 53.1% over the last five years.
Many actively managed mutual and hedge funds use SPY as their benchmark. When you hear about funds “beating the market,” they often mean their returns are better than the S&P 500.
Source: State Street
Trading & Investing in SPY
SPY is one of the most actively traded ETFs in the market year after year. It’s not usual for it to trade 80-to-100 million shares in a single day.
Options SPY are also the most actively traded of any stock or ETF in the market.
SPY investors receive an annual dividend of $6.32, which currently yields 1.5%.
Investors seeking access to large-cap equities via ETFs have several other options. Some of the more notable ones include the Invesco QQQ ETF (QQQ), iShares Core S&P 500 ETF (IVV), Vanguard S&P 500 ETF (VOO), and SPDR Dow Jones Industrial Average ETF Trust (DIA).
VOO has 510 positions in its portfolio, more than SPY at 503, DIA at 31, QQQ at 102, and IVV at 507.
DIA has the most concentrated portfolio. Its top 10 assets comprise 55.2% of the portfolio. QQQ’s comprise 53.4%, SPY 25.6%, IVV 25.4%, and VOO 24.9%.
SPY charges an expense ratio of 0.09%, which is relatively cheap for an ETF.
IVV and VOO are the cheapest ETFs of the group, each with an expense ratio of 0.03%. DIA charges 0.16%, and QQQ charges 0.20%.
If you’re an income investor, DIA has a dividend yield of 1.9%, slightly higher than VOO at 1.6%, SPY at 1.5%, and IVV at 1.5%, and much higher than QQQ at 0.7%.
Three-Year Cumulative Performance
Not surprisingly, the most growth-oriented ETF, QQQ, performed the best.
Our Opinion 7/10
SPY remains one of the best ETFs for investors to gain access to a diversified group of large-cap U.S. equities.
It’s also one of the most liquid ETFs you can trade.
But we like VOO and IVV better if you’re not trading options because both ETFs have returns similar to SPY’s but have cheaper expense ratios.
Either way, you can’t go wrong.
One quick final note: Many brokers, such as Fidelity, offer funds for clients with large amounts of capital that come with even lower fees or no fees that may be more to your taste. Check with your broker to see what they offer before making any investment decisions.
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