SPY: The Original S&P 500® ETF Invest in the World’s Largest Economy

The S&P 500® Index is a market capitalization-weighted index of 500 large-cap firms listed on the New York Stock Exchange (NYSE Arca) or the NASDAQ. It is widely considered to be the benchmark for the US stock market, representing the performance of the largest and most widely held public companies in the country.

SPY is owned by its investors — the shareholders of the fund. When you buy shares of SPY, you become an owner of the fund and are entitled to a share of the fund’s assets and earnings.

SPY is constructed as a traditional open-end fund, or unit investment trust (UIT), which means that it is registered with the US Securities and Exchange Commission (SEC) and is subject to strict regulations. The fund is required to disclose its holdings and other financial information to the public on a regular basis, and it must follow certain rules related to diversification, valuation, risk management. As an investor in SPY, you can expect a high level of transparency and accountability from the fund and its management team.

SPY was created on January 22, 1993. It was the first US ETF to be listed on a national stock exchange, and it remains the most widely traded ETF in the world. The creation of SPY and other ETFs revolutionized the investment industry by providing investors with a new way to access diverse asset classes and investment strategies.

Here’s an overview on how the fund works:

1. State Street Global Advisors manages the fund’s portfolio and maintains its strategy.
2. The fund’s portfolio consists of a basket of stocks that are designed to replicate the performance of the S&P 500® Index.
3. Investors can buy shares in SPY just like they would any other stock. The price of the ETF’s shares is generally determined by the value of the underlying stocks in the portfolio.
4. When an investor buys shares in SPY, they are effectively buying a small piece of each of the underlying stocks in the fund’s portfolio. This allows investors to gain exposure to a broad range of stocks without having to buy them all individually.
5. The ETF generates income for its investors through dividends, which it receives from the underlying stocks in its portfolio. The ETF then distributes this dividend income to its investors.

The SPDR® S&P 500® ETF is listed on the New York Stock Exchange (NYSE Arca) under ticker symbol SPY. It is also available for trading on other major exchanges around the world, including the NASDAQ, the Chicago Board Options Exchange (CBOE), the London Stock Exchange, the Tokyo Stock Exchange, among others. It is also available for trading on many online brokerage platforms, which makes it easy for investors to buy and sell shares of the ETF from anywhere in the world.

• Diversification: SPY provides investors with broad exposure to the stock market, as it holds a basket of stocks that are designed to replicate the performance of the S&P 500® Index. This diversification can help reduce risk and improve the stability of an investment portfolio.
• Convenience: SPY is a simple and convenient way for investors to gain exposure to the stock market, as it allows them to buy a single investment that holds a diverse range of stocks. This saves investors the time and effort of having to research and buy individual stocks.
• Low costs: ETFs like SPY tend to have lower expense ratios (i.e., the annual fee that the fund charges to manage its assets) than actively managed mutual funds. This can make them a cost-effective choice for investors.
• Tax efficiency: ETFs are generally more tax-efficient than mutual funds, as they tend to have lower capital gain distributions — making them an attractive choice for investors looking to minimize their tax liability.
• Liquidity: SPY is a widely traded and popular investment vehicle, and it has high trading volume. This makes it easy for investors to buy and sell shares of the ETF when they need to.

Like any investment, SPY carries certain risks that investors should be aware of before making a decision to invest:

• Market risk: SPY is an investment in the stock market, and as a result, is subject to market fluctuations. The value of the ETF’s shares can go up or down depending on the performance of the underlying stocks in its portfolio.
• Inflation risk: SPY may be affected by inflation, as the value of the fund’s assets may be eroded by rising prices over time.
• Credit risk: SPY may be exposed to credit risk if one or more of the companies in its portfolio experiences financial difficulties or goes bankrupt. This could result in a decline in the value of the ETF’s shares.
• Liquidity risk: SPY is generally considered to be a highly liquid investment, but there is always a risk that it may be difficult to buy or sell shares of the ETF when you want to, due to market conditions or other factors.

It is important for investors to carefully consider their investment objectives and risk tolerance before investing in SPY or any other investment vehicle. For more information on the risks associated with SPY, please review the fund’s prospectus.

Investors use SPY in a variety of ways, depending on their investment goals and risk tolerance, including:

• Liquidity: SPY trades daily on exchange and has multiple layers of liquidity through the unique ETF creation/redemption mechanism, which enables investors to trade whenever the market is open. In today’s market, liquidity is vital and can help investors get in and out of markets fast, easily, and at an attractive cost.
• Diversification: Some investors use the ETF as a core holding in their portfolio, as it provides broad exposure to the US stock market and can serve as a foundation for a diversified investment portfolio.
• Securities Lending: With SPY, investors can participate in securities lending, or the process of loaning their ETF shares to other investors. This strategy is a key aspect of capital markets activity that facilitates settlement, injects liquidity, and fosters confidence for risk taking.

SPY can generate income for its investors by distributing dividends from the stocks that it holds. When a company in the S&P 500® Index declares a dividend, SPY will receive a portion of that dividend based on the number of shares that SPY holds in that company. The ETF will then distribute this dividend to its investors on a quarterly basis.

The amount of dividend income that SPY investors receive will depend on the amount of dividend-paying stocks in the ETF’s portfolio and the dividends that those stocks pay. Since the S&P 500 Index is made up of a diverse group of large-cap stocks from various sectors, the dividend yield of SPY can vary from quarter to quarter and year to year.