Spider (SPDR) is an acronym for Standard & Poor’s Depository Receipts, a type of [exchange-traded fund (ETF)] that tracks the performance of the Standard & Poor’s 500 index (S&P 500) and is managed by State Street Global Advisors. One share of an SPDR equates to one-tenth of the S&P 500 index, generally trading at around one-tenth of the dollar-value level of the S&P 500. This term can also refer to the broad group of ETFs to which the S&P Depositary Receipt belongs.
Key Takeaways
- “Spider” refers to Standard & Poor’s Depository Receipts, or SPDR, an ETF that tracks the S&P 500 index.
- The ETF trades at approximately one-tenth of the S&P 500’s value. Thus, if the S&P is trading at $3,000, an SPDR will trade around $300.
- SPDRs form the backbone of many investment portfolios.
- The price point makes it accessible for nearly any investor wanting to invest in the S&P 500 via an ETF.
How SPDRs Work
SPDRs are traded under the ticker symbol SPY, mirroring the liquidity and flexibility of stocks. Investors can engage in short selling, margin buying, receive regular dividend payments, and pay typical brokerage commissions for their trades.
Spiders are popular among both large institutions and individual investors, particularly those who prefer passive management or index investing. Competing directly with S&P 500 index funds, SPDRs offer an alternative to traditional mutual funds. Investors can purchase and sell SPDRs through brokerage accounts, implementing advanced strategies such as stop-losses and limit orders.
Like mutual funds, SPDRs calculate returns using Net Asset Value (NAV), which is derived from the aggregate value of the underlying investments. However, they trade just like common stocks.
The Origin of SPDR ETFs
SPDRs emerged in 1993 in response to a Securities and Exchange Commission (SEC) report from 1988, which blamed the “Black Monday” crash of 1987 on automated orders for index stock baskets. The SEC suggested that creating a trading instrument for a basket of stocks could prevent future crashes. Consequently, the AMEX and several organizations developed the SPY, initially launching with $6.53 million in securities. Despite early challenges, SPDRs amassed $1 billion within three years. By the end of 2023, the global ETF market achieved $11.63 trillion in assets.
Varieties of SPDR ETFs
SPDRs offer broad market diversification. For instance, the SPDR S&P Dividend ETF aims to replicate the investment results of the S&P High Yield Dividend Aristocrats Index, which includes dividend-paying stocks in the S&P 500. This ETF consists of 136 companies and tracks performance through its NAV, represented as a price per share.
Another example is the SPDR S&P Regional Banking ETF, which evaluates the performance of regional banks or thrifts in the S&P 500, matching the total return of the S&P Regional Banks Select Industry Index. This ETF comprises 140 S&P 500 companies and derives its value through NAV, also given as a share price.
Related Terms: ETF, S&P 500, stock symbol, liquidity, passive management.
References
- U.S. Securities and Exchange Commission. “Spiders (SPDRs)”.
- State Street Global Advisors. “SPDR Product Lineup, ETF Listing”.
- U.S. Securities and Exchange Commission. “SPY: The Idea That Spawned An Industry”.
- ETFGI, LLP. “ETFGI Reports that Assets Invested in the Global ETFs Industry Reached a New Milestone of US$11.63 Trillion at the End of 2023”.
- State Street Global Advisors. “SPDR S&P Dividend ETF (SDY)”.
- State Street Global Advisors. “SPDR S&P Regional Banking ETF (KRE)”.
