1. Exchange-Traded Funds: Introduction
  2. Exchange-Traded Funds: Background
  3. Exchange-Traded Funds: Features
  4. Exchange-Traded Funds: SPDR S&P 500 ETF
  5. Exchange-Traded Funds: Active Vs. Passive Investing
  6. Exchange-Traded Funds: Index Funds Vs. ETFs
  7. Exchange-Traded Funds: Equity ETFs
  8. Exchange-Traded Funds: Fixed-Income and Asset-Allocation ETFs
  9. Exchange-Traded Funds: ETF Alternative Investments
  10. Exchange-Traded Funds: ETF Investment Strategies
  11. Exchange-Traded Funds: Conclusion

The first, and most popular, ETF in the U.S. is the SPDR S&P 500 ETF (AMEX:SPY). It tracks one of the most popular indexes in the world, the S&P 500 Index. It is managed by State Street Global Advisors, one of the largest mangers of ETFs in the world. (For more insight, read S&P 500 ETFs: Market Weight Vs. Equal Weight.)

SPDR S&P 500 ETF Objective

The objective of the SPY ETF is to duplicate as closely as possible, before expenses, the total return of the S&P 500 Index. As of 2008 almost, the S&P 500 Index had 525 million shares outstanding, with total net assets of just over $73 billion. SPY trades on the American Stock Exchange (AMEX) and is one of the most actively traded stocks, regularly trading more than 100 million shares per day and sometimes over 400 million shares per day.

Characteristic of S&P 500 Index

The S&P 500 is a market capitalization index of 500 of the largest companies in the U.S. According to Standard and Poor's, it represents about 75% of the market capitalization of the total U.S. equity market. It is considered to be a large cap index.

The index is composed of 10 main industrial sectors as determine by the Global Industrial Classification Standard (GICS).

Performance of SPDR S&P 500 ETF

Year S&P 500 Index SPY ETF
1 Year -4.68% -4.67%
3 Year 8.23% 8.16%
5 Year 10.62% 10.56%
10 Year 3.89% 3.78%

Annualized returns as of S&P 500 Index and SPY ETF as of April 30, 2008

The SPY ETF tracks the performance of the S&P 500 index very closely; most of the different between them is accounted for by SPY's expense ratio.

For many investors, the SPY represents a good core equity holding, in part because of its low cost (expense ratio). For example, at a closing price of $139.27 on May 21, 2008, 400 shares would have cost an investor $55,708.00 before commission. The expense ratio is .0945% which translates into an annual cost to the investor of about $53, based on the current amount invested. (For more on this, see 10 Reasons To Make ETFs The Core Of Your Portfolio.)

An investor could buy the SPY as a core portfolio holding to provide exposure to the U.S. stock market. Alternatively, an investor could combine it with other ETFs such as a small cap ETF, value-based ETF, or sector ETF to further customize the exposure to U.S. stocks. An active trader could also use this ETF to actively trade because it is exceptionally liquid, making it easy to buy and sell with little cost.


Exchange-Traded Funds: Active Vs. Passive Investing
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