Table of Content
‘Don’t put all your eggs in one basket’, is a common phrase used in the investment world. It means that putting all the eggs in one basket increases the risk as if the basket falls; all the eggs will break. However, if the eggs are put in multiple baskets, the risk of all of the eggs breaking reduces significantly. The same principle is religiously followed by professional investors in the stock market who divide and invest their capital across various asset classes and investment instruments.
Some of the investment instruments that investors use to diversify and cut down the risk factors are equities, derivatives and mutual funds. However, as mutual funds are an asset class that includes numerous investment instruments, a majority of the investors choose an investment avenue known as Exchange Traded Funds. Within ETFs, Spider (SPDR) ETFs are frequently utilised for earning hefty profits.
Exchange-traded funds are types of Mutual Funds that aim to track the performance of a specific index such as NIFTY 50, NIFTY Next 50, NIFTY Bank, etc. An index is a basket of stocks representing certain segments of markets.
For example, NIFTY 50 is a basket of the top 50 companies on the National Stock Exchange, chosen from different sectors of the economy. Exchange-traded funds invest in the same stocks as those in the index and the same proportion as their weight in the index. Hence, they can mirror the performance of the underlying index. These exchange-traded funds can be based on indices tracking various asset classes like equity shares (e.g. NIFTY 50 ETF), bonds (e.g. 10-year G-Sec ETF), Gold (e.g. Gold ETF), Tri-party Repo (e.g. Liquid ETF), etc. Similar to the above indices that trade in India, SPDR ETFs are traded on the National Stock Exchange, mirroring the performance of their specific index.
Spider (SPDR) ETF meaning is an investment instrument being an exchange-traded fund that tracks an index known as Standard & Poor’s 500 indices (S&P 500). S&P 500 is an index that includes a basket of 500 large and mid-cap US companies that are listed on the New York Stock Exchange. The name SPDR is short for Standard & Poor’s depository receipt. State Street Global Advisors manage the exchange-traded fund, and each share of the ETF is a 10th of the S&P 500 index. Since the value of a single stock is a 10th, SPDR trades at around a 10th of the dollar value level of its mirroring index, i.e. S&P 500.
The SPDR ETFs are listed in the US on the New York Stock Exchange and in India on the National Stock Exchange under the ticker symbol of SPY. Previously, they used to trade on the American Stock Exchange but shifted to the New York Stock Exchange in the US after the former was acquired by the latter.
As ETFs work similar to stocks, so as SPDRs. They can be bought, sold, short-sold and bought on a margin similar to stocks, giving them continuous liquidity. Furthermore, similar to stocks, SPDR ETFs also provide regular dividend payments to the holder and come with brokerage commissions when they are traded.
Traders and large financial institutions use SPDRs to track the performance of the S&P 500 index. SPDRs are passive funds because the fund manager does not try to outperform the benchmark index but instead tries to mirror its performance. When mirrored, SPDRs provide returns in the same proportion to the investor holding the SPDR ETFs.
The main component of SPDR ETF is the S&P 500 which comprises 500 US companies across mid-cap and large-cap companies. All the companies are listed on the New York Stock Exchange but trade in India through the National Stock Exchange. The companies span across 24 separate industry sectors and are selected by a specialised committee based on the liquidity, size and sector of the companies. The S&P 500 index, which is tracked by SPDRs, is one of the most reputable indices in the United States equity market.
When an investor invests in SPDRs, their investment acts in a similar manner as other ETFs and invests proportionally in respect to the benchmark index it is tracking. The investors are charged an equivalent ETF management fee as an expenditure proportion of 0.09%. For example, if you are investing Rs 90,000, it will attract an annual management fee of Rs 1.800.
Within SPDRs, investors can diversify among various portions and industries of the stock market. An investor who wants to track the total return performance of the S&P High Yield Dividend Aristocrats Index can invest in SPDR S&P Dividend ETF. It would mean that the investor has invested in dividend-paying stocks that are part of the S&P 500 index. This SPDR ETF is made up of 109 companies and mirrors the overall performance through its Net Asset Value (NAV) that is communicated as price per share.
Furthermore, one other example of SPDRs is SPDR S&P Regional Banking ETFs. The SPDR ETF mirrors the performance of S&P 500 companies that operate as regional banks, providing exposure to such industries and their profit margins. This SPDR ETF comprises 102 companies in the S&P 500 and gets its value from the Net Asset Value which is derived as price per share.
SPDR ETFs tracks one of the most respectable indices in the world, i.e. S&P 500, which have made SPDRs widely famous among investors. As S&P 500 is a direct measure of the economic health of the US, investors invest in SPDRs to profit from the ever-growing US economy. Furthermore, SPDRs are also designed to mimic the most active and high-dividend paying stocks which makes them profitable in the long run. SPDRs operations make them easy to trade as they behave similar to stocks, allowing investors to exercise all strategies associated with stocks.
Every professional investor diversifies and the best way to ensure diversification is to invest in SPDRs which tracks one of the most financially strong indices worldwide. Hence, SPDRs make up for a hefty portion of professional investors’ portfolios. Now that you know SPDR ETF definition along with SPDR ETF meaning, you are better equipped to diversify your portfolio and reduce the overall chances of losses in the stock market. However, make sure that you consult a financial advisor before investing.
Here are the 11 SPDR ETFs:
State Street Global Advisors manage SPDR ETFs.
Yes, SPDR is considered one of the best ETFs as they track the performance of the most financially strong indices worldwide.
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Securities Support WhatsApp Number
+91 9892691696
Download The App Now
Follow us on
2024, IIFL Securities Ltd. All Rights Reserved
Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.
Invest wise with Expert advice
