Definition
SPDR (Standard & Poor’s Depositary Receipt), often referred to as “spiders,” are a form of exchange-traded fund (ETF) that trades on the American Stock Exchange under the ticker symbol “SPY.” These securities represent ownership in a long-term unit investment trust which holds a diversified portfolio of common stocks designed specifically to track the performance of the S&P 500 Index.
Examples
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SPY ETF: The SPDR S&P 500 ETF Trust (SPY) is one of the most famous and widely traded SPDRs. It aims to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.
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SPDR Gold Shares (GLD): Although not tracking the S&P 500, GLD is another example of a Special Purpose SPDR that specifically invests in gold, providing investors exposure to the commodity.
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SPDR Dow Jones Industrial Average ETF (DIA): This SPDR tracks the performance of the Dow Jones Industrial Average, offering investors a chance to invest in 30 of America’s largest companies.
Frequently Asked Questions
Q1: What is the primary benefit of investing in SPDRs?
A1: The primary benefit is the broad diversification they offer, enabling investors to gain exposure to a wide range of stocks within an index like the S&P 500. Additionally, they are highly liquid and traded like individual stocks on major exchanges, which facilitates ease of purchase and sale.
Q2: How do SPDRs differ from traditional mutual funds?
A2: Unlike mutual funds, SPDRs are traded on an exchange throughout the trading day at real-time prices, similar to individual stocks. This allows for greater flexibility, potentially lower costs, and intraday trading opportunities.
Q3: Are there any risks associated with investing in SPDRs?
A3: Yes, SPDRs are subject to market risk, meaning the value of the investment can go up or down with the market. Additionally, while they offer diversification within an index, they do not protect against broader economic downturns.
Q4: How are dividends handled in SPDRs?
A4: Dividends from the stocks held by SPDRs are typically accumulated and paid out to shareholders periodically. The specific timing and method of distribution can vary depending on the particular SPDR fund.
Q5: What fees are associated with SPDRs?
A5: Investors typically incur a management fee, known as the expense ratio, which is charged by the fund manager to cover the costs of managing the ETF. These fees are generally lower than those of mutual funds.
Related Terms
- Exchange-Traded Fund (ETF): A type of security that involves a collection of securities—such as stocks—that often tracks an underlying index. ETFs are traded like a common stock on stock exchanges.
- Index Fund: A type of mutual fund or ETF designed to replicate the performance of a specific index.
- S&P 500 Index: A market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.
- Unit Investment Trust (UIT): An investment company with a fixed portfolio of securities, established through a single public offering and dissolved at a set termination date.
- Dividend: A distribution of profits by a corporation to its shareholders.
Online References
Suggested Books for Further Studies
- “The Bogleheads’ Guide to Investing” by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
- “Exchange-Traded Funds For Dummies” by Russell Wild
- “The Intelligent Investor: The Definitive Book on Value Investing” by Benjamin Graham
- “A Random Walk Down Wall Street” by Burton G. Malkiel
Fundamentals of SPDR: Finance Basics Quiz
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