SPDR S&P 500 ETF: 5 things to know before investing

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Updated: Dec 16, 2020 3:56 PM

The SPDR S&P 500 ETF is an ETF that tracks the S&P 500 index – an index of a diversified group of large-cap US companies across eleven major industries.

 SPDR S&P 500 ETF, performance, index fund, S&P 500 index, Facebook, Apple, Amazon, Netflix,SPDR S&P 500 ETF tracks the S&P 500 index representing all 500 stocks in the index.

Investing in stocks has often been a catch-22 situation for many investors. Whether to buy Stock A or Stock B or both? And, if you are investing in the US stock market, it becomes all the more tempting to buy the blue-eyed stocks – from Facebook to Apple, and from Amazon to Netflix.

What if you are given an opportunity to invest in all of them in one single-go and through a single investment? After all, you need to be invested in all of the growth stocks that hold the potential to generate a chunky return over the next few years, if not decades.

And, what a better way to hold a bouquet of prized stocks through an exchange-traded fund (ETF)? An ETF, typically, tracks one specific index and, thus, investing in it means you end up buying all the stocks of the index in the same proportion as held in the index. What’s more, in an ETF you get the live prices as trading happens all through the market hours and the cost of owning them is considerably low.

The SPDR S&P 500 ETF is one such ETF that tracks the S&P 500 index – an index of a diversified group of large-cap US companies across eleven major industries.

Here are five key highlights of the SPDR S&P 500 ETF:

1. Know about SPDR ETF

SPDR S&P 500 ETF, also known as SPY in the market circles, was launched in January 1993 and is the very first exchange-traded fund listed in the United States. SPDR S&P 500 ETF tracks the S&P 500 Index that consists of a portfolio representing all 500 stocks in the S&P 500 Index.

2. Features

The ETF pre-dominantly holds large-cap US stocks. As on July 07, 2020, the total assets of the SPDR S&P 500 ETF were about $278,946.125 million. The ETF has a management fee of 0.09 per cent and expense ratio of 0.095 per cent.

3. Major holdings

The top three sectors in the S&P 500 are Information Technology, Health Care and Communication Services, totalling about 50 per cent of the index. The three prime stocks of the S&P 500 index are Microsoft, Apple and Amazon by index weightage while Facebook, Berkshire Hathaway, Visa are some other constituents. When you invest in the SPDR S&P 500 ETF, you get the opportunity to gain from the potential of all these winner stocks.

Source: Bloomberg

4. Mark the Performance

The long-term track record of SPDR S&P 500 ETF has been more than satisfying for the investors. Over the 10-year period, the compounded annualised return has been nearly 13 per cent, while the 3-year and 5-year return has been about 11.15 per cent and 10.75 per cent, respectively. Even after the market crash of March 2020, the 1-year return and the year-till-date return has been nearly 7.26 per cent and -1.48 per cent, respectively.

Source: Bloomberg

5. How to invest

SPDR S&P 500 ETF is traded on major US Stock Exchanges and it’s easy to trade in them. Similar to buying equity shares, you can buy SPY ETF through a brokerage account registered in the US. And once invested, you can also employ traditional stock trading techniques such as stop orders, limit orders, margin purchases, and short sales using ETFs. It is very simple and easy for investors to invest in ETFs. So, what’s stopping you to open a US brokerage account and reap the benefits of investing in global markets?

Looking to invest in US Stocks? Open a free account with Stockal - India's first borderless investment platform.

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