SPY: SPDR S&P 500 ETF Trust

What Is the SPY ETF?

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 (S&P) 500 Index, which comprises 500 large-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-cap U.S. stocks.
  • SPY was the first index exchange traded fund (ETF) and fully replicates the index at a price target of 10% of the S&P 500.
  • 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 information technology sector.
  • With a four-star Morningstar rating, the SPDR S&P 500 ETF Trust has generated an average annual return of just over 10% since inception.

Understanding the SPY ETF

The SPY is an exchange traded fund (ETF) that tracks the S&P 500 index. It is often regarded as the first ETF to be listed, and it remains one of the most actively traded, even with the advent of competing S&P 500 ETFs.

The SPY was first introduced in 1993 and had just $6.53 million in assets. After a rough start and some initial difficulty finding investors, it subsequently soared to more than $1 billion in assets under management (AUM) in three years. As of Mar. 31, 2022, the ETF trust has an extraordinary $416.9 billion in 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 Co., and its distributor is ALPS Distributors Inc.

Special Considerations

Because of its relative age, the SPY is constructed as a unit investment trust (UIT), a fixed portfolio that forms units that can be created and redeemed with the issuer. Because of this structure, the SPY fully replicates the S&P 500 Index, holding all members of the underlying index at their target weights.

Today, the SPY and other index ETFs provide investors a way to own the entire index by owning a single security and for a low cost. The SPY has a 0.0945% expense ratio as of April 2022. 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% as of April 2021. These fees do not include any broker fees or commissions.

The price of a share of SPY is intended to be one-tenth that of the S&P 500 Index. So, if the S&P is at a level of 4,700, then the SPY should trade at close to $470.

SPY Top Holdings

The SPY is a well-diversified basket of assets, which allocates its holdings across multiple sectors, the top five listed below as of March 2022:

  • Information Technology: 28.02%
  • Healthcare: 13.61%
  • Consumer Discretionary: 12.02%
  • Financials: 11.11%
  • Communication Services: 9.36%

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 March 2022)
Holding (Company) % SPY Portfolio Weight
Apple Inc. (AAPL) 7.07%
Microsoft Corp. (MSFT) 6.04%
Amazon.com Inc. (AMZN) 3.73%
Tesla Inc. (TSLA) 2.36%
Alphabet Inc. — Class A (GOOGL 2.18%
Alphabet Inc. — Class C (GOOG 2.03%
NVIDIA Corp. (NVDA) 1.78%
Berkshire Hathaway Inc. — Class B (BRK.B) 1.69%
Meta Platforms Inc. (Facebook) — Class A (FB) 1.34%
UnitedHealth Group Inc. (UNH) 1.25%
Source: State Street Global Advisors

SPY Performance

With a four-star Morningstar rating, SPY’s returns have closely tracked the S&P 500, an index that has bested 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 18.53% as of April 2022. Based on trailing 10-year data, the fund generated average annual returns of 14.56%. Since the inception of the SPDR S&P 500 ETF Trust, the fund achieved average annual returns of 10.26%.

This, of course, tracks the S&P 500’s performance (with a beta of nearly 1.00). What is important to note is that the SPY ETF, as it fully replicates the index, has a very low relative tracking error—just 0.02 as of April 2022.

Does the SPDR S&P 500 ETF Trust (SPY ETF) Pay a Dividend?

Yes. As of March 2022, its 12-month distribution yield is 1.29%.

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 ETF 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 Trust 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.

What Is the SPY’s Market Cap?

As of March 31, 2022, the SPY’s market capitalization was just over $416 billion.

The Bottom Line

The SPDR S&P 500 ETF Trust (SPY) offers investors an efficient way to diversify their exposure to the U.S. equity market without having to invest in multiple stocks. Therefore, the 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-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.

Article Sources

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  1. Securities and Exchange Commission. "Spiders (SPDRs)."

  2. Morningstar. "SPDR® S&P 500 ETF Trust."

  3. State Street Global Advisors. “SPDR® S&P 500® ETF Trust.”

  4. Securities and Exchange Commission. "SPY: The Idea That Spawned an Industry."

  5. Vanguard. “Vanguard S&P 500 ETF (VOO).”

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