What is SPDR ETF?

Standard & Poor’s Depository Receipts (SPDR) is an exchange-traded fund that began trading on the American Stock Exchange (AMEX) in 1993, when the investment management group of State Street Global Advisors first issued shares of SPDR 500 Trust (SPY) Sometimes referred to as a “spider”, SPY is an ETF based on the S&P 500 index, and each share represents the ownership interest of 500 stocks in the S&P 500 index. Today, investors can use many other SPDR funds; some track stocks based on market value, while others focus on specific market sectors.

SPY and mutual funds

SPDR funds are different from mutual funds because the shares of SPDR funds are not created for investors at the time of investment. On the contrary, SPDR owns a fixed number of stocks that can be bought and sold on the open market. These stocks are traded on the exchange like stocks.On the other hand, mutual fund shares are created and redeemed by mutual fund companies.

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Key points

  • SPDR exchange-traded funds are issued by State Street Global Advisors and are designed to track indexes or benchmarks.
  • The SPDR 500 Trust, sometimes called a spider, holds the same stocks as the S&P 500 Index.
  • The difference between ETFs and mutual funds is that stocks are traded on exchanges like stocks.
  • There are also SPDR ETFs that focus on specific market capitalizations (small, medium, and large), some of which have been created to track specific market sectors, such as technology, utilities, or finance.
  • Short selling SPDR or buying put options can add hedging elements to the portfolio.

At any given time, the value of each unit in any SPDR exchange-traded fund reflects changes in the relevant index. For example, SPDR 500 trusts traded under the symbol SPY are designed to trade at approximately one-tenth of the S&P 500 index level.If the S&P 500 index is 1,800, the ETF’s stock price will be around $180, but this relationship is not accurate.

Standard & Poor’s industry and capitalization

SPDR ETF aims to study the market capitalization and industry sectors within the Standard & Poor’s 500 Index. In terms of market capitalization, examples include the SPDR portfolio S&P 400 midcap ETF and the SPDR portfolio S&P 600 small cap ETF. On January 24, 2020, State Street Global Investment Management announced the index and name changes to some of these ETFs:

Provided by SSGA.

State Street has also created SPDRs based on different sectors of the S&P 500 Index, such as SPDR Finance (XLF), SPDR Energy (XLE), and SPDR Basic Materials (XLB). Industry funds collectively hold 500 stocks in the Standard & Poor’s 500 Index.

SPDR options, futures and hedging

Since SPDR ETFs are traded like stocks, stocks can also be sold short. Many ETFs also have options related to their respective performance, which can be used for hedging. For example, when an investor holds a long position in the S&P 500 SPDR ETF or the entire stock market, if the S&P 500 index rises, the investor will make money. If the index falls, investors’ investments will begin to lose money. However, if the same investor also hedges their bets by shorting SPDR or buying put options, some risks can be mitigated. This approach is called hedging the market.

Bottom line

SPDR ETFs provide opportunities for individual investors. You can buy stocks to match the performance of the market or index. SPDR also has the flexibility to provide deep market exposure through one of the ETFs that track a broader index. Alternatively, investors can concentrate their bets by investing in one of the SPDRs that specialize in a certain industry or a specific market value. SPDR also has the flexibility to be used as a hedging tool.

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