What Does 'Spider' Mean?
Let me explain what 'Spider' means in the investment world. Spider, or SPDR, is the short name for a Standard & Poor's depository receipt, which is an exchange-traded fund managed by State Street Global Advisors. This ETF tracks the Standard & Poor's 500 index, known as the S&P 500. Each share of an SPDR holds a tenth of the S&P 500 index and trades at about a tenth of the S&P 500's dollar value. You might also hear SPDRs used to describe the broader group of ETFs that fall under this Standard & Poor's depository receipt category.
Key Takeaways on SPDRs
Here's what you need to know about SPDRs. 'Spider' points to Standard & Poor's Depository Receipts, or SPDR, an ETF that follows its underlying index, the S&P 500. This ETF trades at one-tenth of the S&P's value—if the S&P is at $3,000, the SPDR trades at $300. These SPDRs form the foundation of many investor portfolios. Because of their price, they're accessible to nearly anyone looking to invest in the S&P 500 via an ETF.
How Spiders (SPDRs) Work
Spiders are listed under the ticker symbol SPY. They trade like stocks, which means they offer continuous liquidity, can be short sold, bought on margin, provide regular dividend payments, and come with standard brokerage commissions when you trade them.
Large institutions and traders use spiders to bet on the market's overall direction. Individual investors who prefer passive management or index investing also rely on them. In this way, spiders directly compete with S&P 500 index funds and serve as an alternative to traditional mutual funds.
You can buy and sell SPDRs through a brokerage account, so you can apply strategies like stop-losses and limit orders. SPDRs deliver value similar to mutual funds but trade like common stocks. For instance, their returns are calculated using net asset value (NAV), just like a fund, derived from the aggregate value of the underlying investments.
The Origin of SPDR ETFs
SPDRs first appeared in 1993, following a 1988 SEC report that blamed automated orders for index stocks in the 1987 Black Monday crash. The report suggested that an instrument for trading a basket of stocks at once could avoid future issues. In response, the AMEX and other organizations created SPY. It launched with $6.53 million in securities, and after some initial challenges in getting institutions on board, it reached $1 billion in three years. By the end of 2023, the global ETF market had grown to $11.63 trillion in assets.
Examples of SPDR ETFs
You can use SPDRs for broad diversification in specific market areas. Take the SPDR S&P Dividend ETF, for example—it's designed to match the total return performance of the S&P High Yield Dividend Aristocrats Index. This means it focuses on dividend-paying stocks within the S&P 500. The ETF includes 136 companies and tracks performance via its NAV, which is shared as a price per share.
But that's not the only option for diversifying in the S&P 500. Consider the SPDR S&P Regional Banking ETF, which mirrors the performance of regional banks and thrifts in the S&P 500. It aims to match the total return of the S&P Regional Banks Select Industry Index. This ETF consists of 140 companies from the S&P and gets its value from NAV, presented as a price per share.
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