As of June 30, 2015, the SPDR S&P 500 ETF Trust (SPY) generated a yearly return of 7.35%. Based on trailing 10-year data, the fund generated average annual returns of 7.8%. Since the inception of the SPDR S&P 500 ETF Trust, the fund achieved average annual returns of 9.17%.
The SPY aims to track the Standard & Poor's 500 Index, which is comprised of 500 large- and mid-cap U.S. stocks. These stocks are selected by a committee based on the market size, liquidity and industry. The S&P 500 serves as one of the main benchmarks of the U.S. equity market and indicates the financial health and stability of the economy.
The SPY is a well-diversified basket of assets, which allocates its fund into multiple sectors, such as 19.6% information technology, 16.46% financial, 15.44% health care, 12.85% consumer discretionary, 10.09% industrial, 9.61% consumer staples, 7.7% energy, 3.07% materials, 2.92% utilities and 2.26% telecommunication services.
The SPDR S&P 500 ETF Trust allocates almost all of its fund into common stocks, which are included in the S&P 500 Index. Its current top 10 holdings are 3.95% Apple Incorporated (AAPL), 1.95% Microsoft Corporation (MSFT), 1.9% Exxon Mobil Corporation (XOM), 1.48% Johnson & Johnson (JNJ), 1.46% General Electric Company (GE), 1.44% Wells Fargo & Company (WFC), 1.37% Berkshire Hathaway Incorporated - Class B (BRK-B), 1.36% JPMorgan Chase & Company (JPM), 1.16% Proctor & Gamble Company (PG) and 1.13% Pfizer Incorporated (PFE).
The SPDR S&P 500 ETF Trust is structured as an unit investment trust, which is a security that is designed to purchase a fixed portfolio of assets. SPY is listed on the New York Stock Exchange's Arca Exchange, and investors are able to trade this ETF on multiple platforms. The trustee of the SPDR S&P 500 ETF Trust is State Street Bank & Trust Company, and its distributor is ALPS Distributors Incorporated.
The fund has a gross expense ratio of 0.1098% and a net expense ratio of 0.0945%. While these ratios are low, they are not the lowest among other ETFs that track the S&P 500 Index. SPY's expense ratio is almost double the Vanguard S&P 500 ETF's expense ratio of 0.05%. These fees do not include broker fees.
Suitability and Recommendations
As of July 9, 2015, SPY has a trailing five-year alpha of -0.06, a mean annual return of 1.39, a standard deviation of 11.99%, a return of 17.2% and a Sharpe ratio of 1.39. According to modern portfolio theory (MPT), based on trailing five-year data of the SPY's Sharpe ratio, investors who are long the SPY have return on investments greater than the amount of risk they took.
The recovery of the U.S. economy after the 2007-2008 financial crisis allowed investors to generate substantial returns by long-term investing in SPY. Since the low of $67.10 in the SPDR S&P 500 ETF Trust on March 6, 2009, SPY rebounded to a high of $213.78 on May 20, 2015, a 218.6% return.
The SPDR S&P 500 ETF Trust offers investors an efficient way to diversify their exposure to the U.S. equity market, without having to invest in multiple stocks. Therefore, SPY is suitable for any investor that wants to include U.S. equities in his portfolio while taking only a moderate level of risk. However, since the SPDR S&P 500 ETF Trust tracks 500 large- and mid-cap stocks in the United States, it carries a multitude of risks, such as market risk, country risk, currency risk, economic risk and interest rate risk. Investors should be aware of both world and U.S. economic data, which could affect the performance of the fund.