If you are a frequent reader, you might have seen that we have started covering Exchange Traded Funds (ETFs). We believe these tools are a great way of spreading out your risk and diversifying your portfolio. As such, we will keep looking further into them.
Which ETF you invest in will give you exposure to different things. There are themed ETFs that track different industries or sectors or even ones that track different investment strategies. What you do invest in does depend on what you believe is going to have a strong future.
The benefit of an ETF is that you distance yourself from any particular company and can track a whole sector.
In this article, we’re going to look at some of the most famous and known ETFs out there: the SPDR S&P 500 ETF or SPY and the SPDR Portfolio S&P 500 Growth ETF or SPYG. We’re going to give you an idea of what they both are, who manages them and how they compare.
What Are The SPDR ETFs?
Let’s get into the meat of the matter. What are the SPDR or “Spider” ETFs? The acronym SPDR stands for the “Standard & Poor’s Depositary Receipt”. These ETFs track the Standard & Poor’s 500 index or indices that are based on the same. Let’s take a look at some things you should think about when considering these ETFs!
What Benefits Do SPDR ETFs Provide?
Given that they trade general indices, SPDRs are used by traders and institutions to bet on a general market trend and not any particular company. They are also a great tool for people who don’t want to manage their portfolio actively and believe in passive management.
Spiders also benefit from being traded similar to stocks; they can be traded, short-sold, and bought on margin. This does give you quite the benefit of equity while providing similar value to a mutual fund.
The Different SPDR ETFs
Given that they are all based on the S&P 500, does that mean that all the SPDRs are the same?
Well, not exactly.
The different SPDRs have different variations to them. What are all the SPDRs?
Let’s take a look:
- SPDR S&P 500 ETF Trust (SPY): This ETF seeks to provide investment results corresponding to the S&P 500 Index directly.
- SPDR Portfolio S&P 500 Growth ETF (SPYG): The SPYG looks to provide results corresponding to the S&P 500 Growth Index.
We’ll go into more detail about what both the S&P 500 and the S&P 500 Growth index are further on. Let’s take a look at the other SPDRs that State Street Global Advisors offers and what they are based on:
- SPDR Portfolio S&P 500 High Dividend ETF (SPYD): The SPYD is an ETF that tracks and looks to provide results that correspond to the return performance of the S&P 500 High Dividend Index. This index is built to measure the performance of the top 80 high dividend-yielding companies that are found in the S&P 500.
- SPDR Portfolio S&P 500 Value ETF (SPYV): This ETF tracks and provides investment results that correspond to the total return performance of the S&P 500 Value Index. This index consists of those stocks in the S&P 500 Index showing the strongest value.
- SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX): This last ETF generally tracks the returns of the S&P® 500 Fossil Fuel Free Index. This index fund generally gives an alternative to climate-conscious investors. Essentially, it tracks a subset of the S&P 500 that are “fossil fuel-free”, or do not own fossil fuel reserves.
Who manages the SPDR ETFs?
The SPDR ETFs are managed by State Street Global Advisors, the asset management arm of State Street Corporation. At this time, they are the world’s fourth-largest asset manager with $3.86 trillion in assets under management.
The Assets Management division was founded in 1978 in Boston, Massachusetts, and introduced the investment vehicles known as ETFs in 1993 with the S&P 500 ETF or SPY. Nowadays, they offer a multitude of different ETFs and other investment products, growing to become the number three ETF manager in the world.
What are SPY and SPYG based on?
Now we said we would go into detail on what the SPY and SPYG are based on. The SPY ETF tracks the S&P 500 directly. On the other hand, the SPYG tracks the S&P 500 Growth Index. This index, like the others mentioned, is a subset of the S&P 500 index. So, let’s get an understanding of what the index as it’s known is.
The S&P 500
The S&P 500 is an index of the leading 500 publicly traded companies in the U.S., weighted by market capitalization. It is thus one of the most important gauges of the general trend of the U.S. economy. It does so by tracking the top companies across all sectors, and it’s as simple as that. That being said, given that it is the best indicator of large-cap U.S. equities, it has become one of the most popular American indexes.
What is the S&P 500 Growth Index?
Now that we have an idea of the index let’s look at the S&P 500 Growth Index. This is another index that looks at those “growth” companies included in the S&P 500. It’s thus focused on the largest and fastest-growing companies and not necessarily all of them. These companies are considered fast-growing based on:
- Sales growth
- Earnings change to price
Given that it’s a subsection of the S&P 500, the Growth Index has much fewer companies in its holdings, which means that the same is much more affected by a significant flux of any individual company.
What is SPY?
Now that we know what the underlying indexes are let’s see the ETFs tracking them. Let’s start with SPY.
The SPY is one of the most popular ETFs out there nowadays. Since its first introduction in 1993, it has grown to hold a massive $422 billion in assets under management.
As we already mentioned, the S&P and the SPY track the top 500 publicly traded companies. That said, the price of SPY is built to be one-tenth of the S&P 500 index. What does that mean? If the S&P is at 5,000, the SPY would be close to $500.
Now, of these 500, the top ten as of November 2021 with their corresponding weights are:
- Apple Inc: 6.4%
- Microsoft Corporation: 6.4%
- Amazon.com Inc: 3.9%
- Tesla Inc: 2.3%
- Alphabet Inc. Class A: 2.2%
- Alphabet Inc. Class C: 2.1%
- NVIDIA Corporation: 2.0%
- Meta Platforms Inc. Class A: 2.0%
- Berkshire Hathaway Inc. Class B: 1.3%
- JPMorgan Chase & Co: 1.3%
And looking at the different industries that are held in the same:
- Information Technology: 28.79%
- Consumer Discretionary: 13.11%
- Health Care: 12.61%
- Financials: 11.12%
- Communication Services: 10.45%
- Industrials: 7.97%
- Consumer Staples: 5.62%
- Energy: 2.80%
- Real Estate: 2.63%
- Materials: 2.52%
- Utilities: 2.38%
We can see that the industries that SPY tracks are quite diverse. That being said, the same does heavily skew towards information technology. However, this is in great part due to how prevalent software companies have become in our daily lives. At a different time, other companies and different industries would have been part of the S&P 500.
As we can see, the SPY gives a great way for investors to gain access to the entire index at a great cost. This is because the same has a low expense ratio of 0.0945%. Furthermore, the fund also provides dividends for the investment, and the same is at an annual Fund distribution yield of 1.21%.
What is SPYG?
Now that we’ve gotten into the SPY let’s see what SPYG has to offer. As we mentioned, the same tracks and keeps its value off the S&P 500 Growth Index. Like the SPY with the S&P 500, the SPYG tracks the same at a value of one-tenth of the growth index.
The SPYG has become very important, with $15.7 billion in assets under management. If we check the holdings of the SPYG, the same holds 244 different companies, the top ten beings:
- Apple Inc.: 11.51%
- Microsoft Corporation: 11.49%
- Amazon.com Inc.: 7.06%
- Tesla Inc: 4.10%
- Alphabet Inc. Class A: 3.98%
- Alphabet Inc. Class C: 3.74%
- NVIDIA Corporation: 3.63%
- Meta Platforms Inc. Class A: 3.68%
- Adobe Inc: 1.44%
- Home Depot Inc.: 1.43%
Note that given that the S&P 500 Growth Index is built as a subset of the S&P 500, all the former holdings are found in the latter. Do note that this smaller subset means that the SPYG has a larger percentage of individual companies.
For example, 11.51% of the SPYG is in Apple Inc, while 6.4% of SPY is the same.
When checking out industries, we find a similar pattern:
- Information Technology: 43.27%
- Consumer Discretionary: 17.16%
- Communication Services: 14.40%
- Health Care: 10.98%
- Industrials: 5.17%
- Consumer Staples: 3.00%
- Financials: 2.79%
- Materials: 1.73%
- Real Estate: 1.00%
- Utilities: 0.46%
- Energy: 0.05%
Here we can see that the SPYG is much more heavily focused on information technology than the SPY. This is largely because of the massive growth that information technologies see nowadays in the U.S. economy.
If we look at the fund’s expense ratio, the same has only an annual operating expense ratio of 0.04%. This makes it a very cheap option for your portfolio diversification.
Lastly, let’s cover dividends. In this case, you’ll only be looking at a Fund distribution yield of 0.63%. Do note that you would not be investing in an ETF for the dividends, but for the increase in value over time of the fund itself.
Comparing the SPY and SPYG
So, let’s look at how this two compare. As we already mentioned, the growth index is based on a subset of the S&P 500. This means that both have very similar holdings, and investing in one would mean you don’t necessarily want to invest in the other. This is because you’d be exposed to the same risk twice.
If we check the following graph, you’ll see why. The drop at the beginning of the pandemic had a massive effect on all industries. Given this, you would be in a way double exposed and would see a significant dip in your investments.
Now let’s look at how both of these have been performing over time. We can see that SPYG has consistently outperformed the SPY index in recent times, partly because of its lower expense ratio of only 0.04 as opposed to 0.0945%.
Another aspect to consider is the domination of the “FANGS” stocks. These are the five stocks that make up the “FAANG” acronym. These are Meta (F.B.), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG). Given the massive growth that these have had, the larger exposure that SPYG has to them resulted in a larger return.
That being said, the SPY is much less top-heavy. The largest weight of any individual stock is only at a little over 6%. This means that it would be much less affected by any dips in any specific one. Additionally, it’s much less invested in information technology, which means it’s much less affected by any fluctuations of that sector.
It’s clear to see that both SPY and SPYG are excellent investment products, and they are an easy way to gain access to a wide variety of different companies. While SPYG has had better performances in recent years, it is clear that SPYG has outperformed in recent years, but that has not always been the case.
If you want to invest in something as diverse as possible, you want to put your money in SPY. If you are looking to invest in a more focused subset of companies growing revenues, SPYG is your option.
That being said, although growth has been outperforming value in recent years, this has not always been the case. Unfortunately, we can’t foretell the future, and what has worked in the past does not mean that it will work in the future.
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