The State Street SPDR S&P 500 ETF Trust (symbol: SPY) is the oldest and one of the largest exchange-traded funds (ETFs) in the market and widely used by both individual and institutional investors. SPY is a low-cost index fund, which tracks the S&P 500 Index. The fund seeks to provide exposure to the US stock market at a very low price. The fund is the core of many portfolios and the below review of SPY will evaluate why that is.
A quick reminder that this site does NOT provide investment recommendations. Fund reviews (such as this one) are for educational purposes only and are not advice or recommendations.
SPY Performance
The first thing most investors want to know about is performance, so we will start there. According to Bloomberg, since the fund’s inception 30 years ago, SPY has returned nearly 10% per year. Of course, this figure can go up or down and the returns in any single year are unlikely to be 10%. From 1994 through 2022 (29 years), SPY was up in 23 years and down in 6 years. The average return in the up years was 18.5%, while the average return in the down years was -17.1%.
SPY Risks
SPY owns stocks which are more volatile than cash or bonds. While the returns are higher than cash or bonds, investors need to be prepared to stomach volatility and be able to hold for the longer-term. SPY was down nearly 35% during the covid pandemic and down over 25% at one point in 2022. Looking further back, it was down nearly 50% during the 2000-2003 recession and declined over 55% during 2007-2009 recession. This is not necessarily worse than other similar funds, but it is a characteristic of stocks that investors need to be aware of.
SPY Portfolio
Fund performance is ultimately driven by a fund’s holdings and exposures, so our SPY review will examine these items.
SPY Holdings
SPY (and its underlying index) is incredibly diversified, holding over 500 stocks. This represents the large-cap segment of the US stock market.
| SPY | S&P 500 | |
| Number of Stocks | 503 | 503 |
SPY Country Exposures
SPY only owns US-based companies. Investors looking for international exposure may pair SPY with international ETFs or simply hold a global ETF.
SPY Market Cap Exposure
SPY is primarily a large-cap fund which seeks to represent the largest US stocks. Even though the fund holds some mid-caps, performance is primarily driven by the large-cap exposure.
| SPY | |
| Large-Cap | 83% |
| Mid-Cap | 16% |
| Small-Cap | 0% |
SPY Sector Exposures
SPY is extremely diversified across sectors and mirrors the approximate weights of the broad US stock market.
| SPY | |
| Basic Materials | 2.27% |
| Consumer Cyclical | 10.36% |
| Financial Services | 12.34% |
| Real Estate | 2.53% |
| Communication Services | 8.75% |
| Energy | 4.31% |
| Industrials | 8.13% |
| Technology | 27.43% |
| Consumer Defensive | 7.02% |
| Healthcare | 14.14% |
| Utilities | 2.72% |
Expenses
No review of SPY would be complete without an in-depth look at the explicit and implicit costs of trading and holding SPY.
SPY Expense Ratio
SPY’s expense ratio of .095% is on the higher end for a large index fund, although it is still incredibly low in historical terms and compared to the rest of the market. Investors may be interested in comparing SPY vs VOO or SPY vs IVV.
SPY Transaction Costs
ETFs are free to trade at many brokers and custodians, so SPY should be free to trade in most cases. Additionally, it is among the largest ETFs and is very liquid. The bid-ask spread of SPY is about .01%, so individual investor trades will not generally be large enough to impact or move the market.
SPY Tax Efficiency
Like most index funds, SPY is very tax-efficient. Unlike actively-managed funds, passively-managed index funds typically have less trading and lower turnover. This results in fewer taxable events and higher tax efficiency.
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). SPY has never made a capital gains distribution, so SPY is about as tax-efficient as any fund can be.
Investors in a high tax bracket with at least $250,000 may consider direct indexing rather than SPY, as direct indexing can potentially generate even more tax savings.
SPY Review: A Recap
The above review of SPY illustrates that SPY is a well-constructed, low-cost and tax-efficient index fund that provides diversified exposure to the US stock market. SPY is a great choice in many situations and a tool that I often use personally and professionally.
