Standard and Poor's Depositary Receipts (SPDR) - Explained
What is a S&P Depositary Receipt?
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Table of ContentsWhat is a Standard and Poor's Depositary Receipt?How Does a Standard and Poor's Depositary Receipt Work?Examples of SPDR ETFsOrigin of SPDRETFs
What is a Standard and Poor's Depositary Receipt?
Spider is a term which designates a group of Exchange-Traded Funds in which the Standard & Poor's Depositary Receipt is a part of. This Exchange-Traded Fund is controlled by the State Street Global Advisors and this group is solely responsible for tracking the Standard & Poor's 500 indexes (S&P 500). Each share of an SPDR contains a 10th of the S&P 500 index and trades at roughly a 10th of the dollar-value level of the S&P 500.
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How Does a Standard and Poor's Depositary Receipt Work?
Spiders are traded quite similar to stocks, investors invest in spiders as passive management or index investing. Spiders are known to have consistent cashflows among other advantages such as being short sold, available on margin, provide regular dividend payments and incur regular brokerage commissions when traded. SPDRs on the other hand also provide investors with a value just like mutual funds but they are commonly traded like common equity. In index investing, spiders compete directly with S&P 500 index funds and provide a second option to traditional mutual fund investment. The returns of an SPDR is calculated using net asset value (NAV), similar to mutual funds, calculated using the aggregate value of the underlying group of investments. Also, it is possible to include strategies such as stop-losses and limit orders because spiders can be purchased and sold through a brokerage account. Spiders are also listed on the New York Stock Exchange(NYSE) after the acquisition of the American Stock Exchange(AMEX) under the ticker symbol SPY.
Examples of SPDR ETFs
Investors can use different SPDRs such as the SPDR S&P Dividend ETF and SPDR S&P Regional Banking ETF among others to achieve a wide variety of investments in specific parts of the market. The SPDR S&P Dividend ETF is made up of a total of 109 companies and tracks performance through its NAV, which is communicated as a price per share. This investment provides investment results that monitor the total return performance of the S&P High Yield Dividend Aristocrats Index. On the other hand, the SPDR S&P Regional Banking ETF is also an investment that shows the performance of companies within the S&P 500 that has its business as regional banks or thrifts. In summary, the ETF provides results that are equivalent to the sum total returns of the S&P Regional Banks Select Industry Index.
Origin of SPDRETFs
The Securities and Exchange Commission (SEC) report of 1988 paved way for SPDR in 1993. This report is as a result of a massive Monday crash of 1987. This crash was asserted to have been caused as a result of automated orders for all index stocks. The report provided a solution that an instrument for trading a large number of stocks at a single time could curb this crash in later times. As a result of this, the AMEX and some other organizations developed the SPY. The ETF was launched with $6.53 million but the price scaled higher to $1 billion in three years. With an increase in the ETF market as of Sept. 30, 2017, it exploded to $3.5 trillion in assets. Meanwhile, at the initial launching, institutions were persuaded on purchasing the product.