What Does Spiders?
Spider (SPDR) is a short form name for a Standard & Poor's depositary receipt, an exchange-traded fund (ETF) managed by State Street Global Advisors that tracks the Standard & Poor's 500 index (S&P 500). Each share of a SPDR contains a 10th of the S&P 500 index and trades at roughly a 10th of the dollar-value level of the S&P 500. SPDRs can also refer to the general group of ETFs to which the Standard & Poor's depositary receipt belongs.
Understanding Spiders (SPDR)
Spiders are listed on the New York Stock Exchange (NYSE) after the acquisition of the American Stock Exchange (AMEX) under the ticker symbol SPY. By trading similar to stocks, spiders have continuous liquidity, can be short sold, bought on margin, provide regular dividend payments and incur regular brokerage commissions when traded. Spiders are used by large institutions and traders as bets on the overall direction of the market. They are also used by individual investors who believe in passive management or index investing. In this respect, spiders compete directly with S&P 500 index funds and provide an alternative to traditional mutual fund investment.
SPDRs provide investors with value in much the same way as a mutual fund, but they trade like a common equity. For example, the returns of a SPDR is calculated using net asset value (NAV), just like a fund, which is derived using the aggregate value of the underlying group of investments. However, SPDRs can be purchased and sold through a brokerage account, meaning that strategies that use stop-losses and limit orders can be implemented.
Examples of SPDR ETFs
Investors can use SPDRs to realize broad diversification to specific portions of the market. For example, the SPDR S&P Dividend ETF is an investment vehicle that seeks to provide investment results that track the total return performance of the S&P High Yield Dividend Aristocrats Index. This means that the SPDR S&P Dividend ETF indexes dividend-paying stocks that are a part of the S&P 500. The ETF is made up of a total of 109 companies and tracks performance through its NAV, which is communicated as a price per share.
However, this is not the only SPDR that an investor can use to realize a diversified investment in the S&P 500. Using another real-world example, investors can invest in SPDR S&P Regional Banking ETF, which is an investment vehicle that reflects the performance of companies within the S&P 500 that conduct business as regional banks or thrifts. Specifically, the ETF seeks to provide results that match to the total return of the S&P Regional Banks Select Industry Index. The ETF is comprised of 102 companies in the S&P and also derives its value with its NAV, disseminated as a price per share.
Origin of SPDR ETFs
SPDRs arrived in 1993 after the Securities and Exchange Commission (SEC) issued a 1988 report faulting automated orders for all index stocks for contributing to the "Black Monday" crash of 1987. The report stated that an instrument for trading a basket of stocks at one time could prevent the problem in the future. In response, the AMEX and several other organizations developed the SPY. The original ETF launched with $6.53 million in securities and, after initial difficulty persuading institutions to purchase the product, it soared to $1 billion in three years. The size of the ETF market as of Sept. 30, 2017, has exploded to $3.5 trillion in assets.