What Is the SPY ETF?

The SPDR S&P 500 Trust ETF, also known as the SPY ETF, is one of the most popular funds that aims to track the Standard & Poor's 500 Index, which comprises 500 large- and mid-cap U.S. stocks. These stocks are selected by a committee based on market size, liquidity, and industry. The S&P 500 serves as one of the main benchmarks of the U.S. equity market and indicates the financial health and stability of the economy.

Key Takeaways

  • The SPDR S&P 500 ETF Trust, also known as the SPY ETF, is one of the most popular funds that aims to track the Standard & Poor's 500 Index, which comprises 500 large- and mid-cap U.S. stocks.
  • Its top 10 holdings are heavily weighted in technology companies such as Apple, Microsoft, and Amazon—approximately one-quarter of the SPY ETF is invested in the technology sector.
  • With a four-star Morningstar rating, the SPDR S&P 500 ETF Trust has generated an average annual return of just under 10% since inception.

Understanding the SPY ETF

The SPY is a well-diversified basket of assets, which allocates its fund into multiple sectors, such as 24.19% information technology, 13.82% healthcare, 13.55% financial services, 11.18% communication services, 9.04% industrials, 7.17% consumer defensive, 10.99% consumer cyclical, 2.86% utilities, and 2.52% real estate.

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

SPY ETF's Top 10 Holdings (as of December 2020)
Holding (Company) % SPY Portfolio Weight

Apple Incorporated (AAPL)
6.56%

Microsoft Corporation (MSFT)
5.39%

Amazon.com Inc (AMZN)
4.38%

Facebook Inc - Class A (FB)
2.10%

Alphabet Inc A (GOOGL
1.67%

Alphabet Inc Class C (GOOG)
1.62%
Tesla Inc. (TSLA) 1.58%

Berkshire Hathaway Inc - Class B (BRK.B)
1.39%

Johnson & Johnson (JNJ)
1.29%

JPMorgan Chase & Co (JPM)
1.21%
Source: etf.com/SPY

SPY Performance

With a four-star Morningstar rating, SPY's returns have beat the average return of other large blend funds in the past decade. The SPDR S&P 500 ETF Trust (SPY) has generated an average three-year return of 13.25% through December 2020. Based on trailing 10-year data, the fund generated average annual returns of 13.55%. Since the inception of the SPDR S&P 500 ETF Trust, the fund achieved average annual returns of 9.96%.

Characteristics

The SPDR S&P 500 ETF Trust is structured as a unit investment trust, which is a security that is designed to purchase a fixed portfolio of assets. SPY is listed on the New York Stock Exchange's Arca Exchange, and investors can trade this ETF on multiple platforms. The trustee of the SPDR S&P 500 ETF Trust is State Street Bank and Trust Company, and its distributor is ALPS Distributors Incorporated.

The fund has a gross expense ratio of 0.095%. While 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 triple the Vanguard S&P 500 ETF's expense ratio of 0.03%. These fees do not include any broker fees or commissions.

SPY ETF FAQs

Does the SPY ETF Pay a Dividend?

Yes. As of December 2020, its 12-month yield is approximately 1.55%.

What Is the Difference Between an ETF and a SPDR?

An exchange-traded fund (ETF) is the broad name for a kind of security that aggregates or tracks multiple stocks within an index, industry, or another grouping. Meanwhile, SPDRs are a type of specific exchange-traded fund issued by State Street Global Advisors that tracks a specific index such as the S&P 500.

What Does SPDR Stand For?

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

Is the SPDR S&P 500 ETF a Good Investment?

Yes. The SPY ETF diversifies exposure to the U.S. equity market and is suitable for investors willing to take on a moderate level of risk.

The Bottom Line

The SPDR S&P 500 ETF Trust offers investors an efficient way to diversify their exposure to the U.S. equity market without having to invest in multiple stocks. Therefore, SPY is suitable for any investors who want to include U.S. 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- and mid-cap stocks in the United States, it carries a multitude of risks, such as market risk, country risk, currency risk, economic risk, and interest rate risk. Investors should be aware of both world and U.S. economic data, which could affect the performance of the fund.