There are hundreds or thousands of famous names for stock investors to choose from, but what if you could get immediate exposure to 500 top U.S. stocks? It’s possible with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), and you can own this fund without paying hefty fees. I’m bullish on the SPY ETF because it has an excellent track record of providing returns to shareholders over the long term.
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SPY stock is provided and managed by State Street (NYSE:STT), and it’s designed to track (i.e., closely follow) the S&P 500 (SPX) index. It’s been around since 1993, which makes SPY the first publicly-listed U.S. exchange-traded fund (ETF). Believe it or not, the SPY ETF represents over $380 billion worth of assets under management (AUM).
Of course, being the first and biggest doesn’t necessarily make SPY the best U.S. ETF. So, let’s see what else sets SPY apart from lesser entrants in the ETF space.
Instant Diversification is Easy with the SPY ETF
If you don’t have the desire or the know-how to pick individual stocks, you can simply let the SPY ETF’s fund managers do the legwork on your behalf. This fund provides immediate and convenient diversification for your portfolio, and SPY can be bought and sold within many types of investment accounts, including some retirement accounts.
Like the S&P 500 itself, the SPY ETF represents a basket of 500 companies across a broad range of market sectors, from information technology to health care, to consumer discretionary, financials, and more. Be aware, though, that not all of these categories are represented equally; this is a weighted index fund, meaning some sectors and companies have more influence than others do in the SPY ETF.
Notably, the information technology sector comprises around 26% of the weight of the SPY ETF. So, if you’re going to buy and hold SPY, you’ll definitely want to be bullish on technology names like Apple (NASDAQ:AAPL), which has a 7.14% weighting in SPY; Microsoft (NASDAQ:MSFT), which has a 6.25% weighting; and Amazon (NASDAQ:AMZN), which has a 2.68% weighting in the fund.
SPY is a Historical Winner with Low Fees
While having a mix of 500 stocks helps to reduce the volatility of the SPY ETF, there will still be ups and downs. Yet, if you check the long-term chart of SPY, you’ll find that historically, it has always recovered from its downturns (though we should bear in mind that past performance doesn’t guarantee future results).
Also, the SPY ETF pays a 1.56% annual dividend yield, so that should enhance investors’ returns over the long run. The dividend payments are issued on a quarterly basis, and some shareholders like to reinvest the dividends into more SPY shares in order to achieve a compounding effect.
Here’s my favorite feature of the SPY ETF, though — the rock-bottom fees. Believe it or not, SPY’s annual gross expense ratio is just 0.09%. In other words, the SPY ETF’s investors pay less than 1/10 of a percent per year for all of the fund managers’ hard work and due diligence — not a bad deal, wouldn’t you agree?
Is SPY Stock a Buy, According to Analysts?
On TipRanks, SPY earns a Moderate Buy consensus rating based on the ratings of 6,168 analysts. 59% of ratings are Buys, while 35.51% are Holds and just 5.5% are Sells. The average SPY stock price target of $469.96 implies 13.2% upside potential.
Conclusion: Should You Consider SPY ETF?
If you’d rather let someone else handle the business of picking large-cap U.S. stocks on your behalf, the SPY ETF is definitely worth considering. With SPY, you can get fast exposure to a broad range of well-known businesses.
Plus, investors can collect dividend payouts every quarter. So, as long as you don’t mind giving extra weight to tech names in your portfolio, the SPY ETF is a great way to delve into the wide world of American stocks.
