Many years ago, mutual funds were the go-to route for instant stock-market diversification. Then came the exchange traded fund (ETF) revolution in January of 1993 with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Suddenly, self-directed investors could get easy exposure to the S&P 500 index simply by owning SPY stock.
Not only was this the very first ETF, but three decades later, it’s still the most famous one that tracks a major U.S. financial market index. The fund’s prime directive, really, is to move in lockstep with the S&P 500.
With $387.5 billion worth of assets under management, the SPDR S&P 500 ETF Trust might even be considered a mutual fund killer. At the very least, it can help non-professional investors avoid exorbitant fees.
You might be ready to start buying SPY stock, but hold on. You wouldn’t want to buy something without knowing what you’re betting your hard-earned money on. With that in mind, let’s delve into a fabulous fund that might deserve a place in your portfolio.
A Closer Look at SPY Stock
First and foremost, the SPDR S&P 500 ETF Trust pays a dividend yield that’s fairly similar to its underlying index. According to the fund’s website, the S&P 500’s annual dividend yield is 1.45%, while the fund distributes a yield of 1.34%.
SPY stock’s five-year monthly beta is 1, which makes perfect sense. After all, beta refers to how fast an asset moves, in both directions, compared to the S&P 500 index. A beta of 1 means that the SPDR S&P 500 ETF Trust is moving as fast as the index, so that’s a good sign.
Now, here’s one of my favorite things about this fund. It has one of the lowest expense ratios (basically, what the shareholders are paying the fund’s managers) in the business.
Between the trustee’s fee, S&P license fee, marketing and other operating expenses, the SPDR S&P 500 ETF Trust’s total expense ratio is just 0.0945%. That’s less than a tenth of a percent, so as an investor, you probably won’t even notice it.
What’s in the Fund?
“Know what you own” is a wise old saying in the financial markets. So, it’s a good idea to learn about what’s in the SPDR S&P 500 ETF Trust before taking a position in it.
When browsing through the fund’s components or holdings, one thing will stand out immediately. It’s undeniable: there are a lot of technology-focused businesses in the fund.
Like the S&P 500 itself, SPY stock is market-capitalization-weighted. Therefore, the biggest companies will take up larger percentages of the fund.
Interestingly, the top five holdings in the SPDR S&P 500 ETF Trust make up over 20% of the fund. Furthermore, they’re all technology companies.
In order, the top five holdings are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) Class A and Class C shares.
It might seem odd that Alphabet, the parent company of the Google search engine, gets to be numbers four and five on the list. Yet, that’s because the company offers two different types of stock shares, and they’re both quite popular.
Also in the fund’s top-ten holdings are Meta Platforms (NASDAQ:FB) and Nvidia (NASDAQ:NVDA). Are you detecting a common theme here? These are all tech businesses, of course. Hence, you’d better be on board with technology-sector investing if you’re going to hold SPY stock.
The Bottom Line
Since it represents hundreds of companies, the SPDR S&P 500 ETF Trust does offer instant diversification.
Yet, it’s also heavily weighted toward technology businesses. Some investors might take issue with this.
That’s understandable, but SPY stock has its advantages. The funds’ fees are rock-bottom, and it does a commendable job of tracking the S&P 500. Thus, you can feel confident using a buy-and-hold strategy with the SPDR S&P 500 ETF Trust.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
