The 7 Best SPDR ETFs to Buy and Hold
These seven SPDR ETFs can help you build a solid, low-cost portfolio core while allowing you to benefit from America's growth and innovation.
State Street's job as an investment manager is to get you from point A to point B with as little pain as possible, and hopefully, plenty of assets in your retirement portfolio. And to its credit, many of its best SPDR ETFs do exactly that.
State Street now boasts 140 ETFs under the SPDR nameplate. Which ones investors should trust the most with their money is an open question, given that we're winding down one of the most memorable years on record and heading into the unknown. But if one thing seems likely as we navigate our way out of recession, it's that you should invest expecting change.
"The research has actually shown that during economic downturns that there's an acceleration of innovation that occurs," North Carolina-based economic expert Jamie Jones tells ABC. "For example, during the Great Depression we saw a huge increase in manufacturing capabilities, as well as new materials being introduced like nylon and Teflon."
More recently, you can look to the creation of Uber Technologies (UBER) and Airbnb to meet the changing needs of consumers worldwide.
Fortunately for investors, State Street's SPDR ETFs offer a broad range of options that allow investors to build a core portfolio while also taking occasional shots to capture some of the economic benefits derived from innovation. Investors in these funds also benefit from diversification, low fees, liquidity, transparency and tax efficiency.
Read on as we examine seven of the best SPDR ETFs to buy and hold for at least the next few years, if not throughout your investing horizon. Depending on your personal needs, you might load up on certain funds while ignoring others. But this list offers up options for just about every core portfolio objective.
Data as of Oct. 25. Yields represent the trailing 12-month yield, which is a standard measure for equity funds.
SPDR Portfolio S&P 1500 Composite Stock Market ETF
- Type: U.S. equity
- Assets under management: $3.8 billion
- Dividend yield: 1.8%
- Expenses: 0.03%
When you're thinking about SPDR ETFs that invest in U.S. stocks, your natural inclination might be to go with the SPDR S&P 500 ETF Trust (SPY). Not only is the S&P 500 tracker State Street's largest ETF, but it's also the first U.S.-listed exchange-traded fund, as well as the largest ETF on the planet at nearly $300 billion in total net assets.
While Warren Buffett doesn't believe you need anything more than a S&P 500 tracker, the SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM, $42.35) is the perfect alternative for investors who want to capture a broader swath of America's equity markets.
SPTM provides access not just to the large-cap-heavy S&P 500 Index, but also the S&P MidCap 400 Index and the S&P SmallCap 600 Index, all in one convenient package. Instead of getting 505 holdings with a median market cap of $23.9 billion from the SPY, SPTM invests your money in more than 1,500 holdings with a median market cap of $3.5 billion, or about one-seventh the size of the S&P 500.
And it does so for 6.45 basis points in fees less than the SPY. (A basis point is one one-hundredth of a percentage point.)
While smaller stocks have higher perceived risks, the reality is that some of the best-performing stocks over the long term are mid-caps and small-caps. Thus, it makes sense to try to gain at least some exposure to these smaller stocks.
But you're not overloading on them. SPTM's top 10 holdings, which account for more than a quarter of the portfolio's overall weight, are mega-caps such as Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN), and 78% of the portfolio is large-cap in nature. So you still get ample access to the blue chips in the S&P 500, but within a "total-market" strategy.
SPDR Portfolio Developed World ex-US ETF
- Type: Developed-markets equity
- Assets under management: $8.1 billion
- Dividend yield: 2.4%
- Expenses: 0.04%
This particular ETF, which tracks the performance of the S&P Developed Ex-U.S. BMI Index, charges an incredibly low annual fee of 0.04% to access 26 different international markets, including Japan (24.1%), the United Kingdom (11.4%) and Canada (8.7%). As the fund name suggests, these countries are considered "developed" markets, versus "emerging" and "frontier" markets such as Brazil, Turkey and South Africa.
Investors who own SPDW avoid "home country bias" by investing outside the U.S. While it's only natural to cheer for the home team – America's stocks account for more than half of the entire world's market capitalization – it's useful to own stocks from other parts of the world when constructing a portfolio that will withstand all kinds of market conditions. This helps offset those times when the U.S. markets aren't doing so well.
SPDW's 2,100-plus holdings are well distributed across the market's various sectors, though the heaviest weights go to industrial (15.9%), financials (15.3%) and health care (11.8%). Top stocks include the likes of Swiss consumer giant Nestle (NSRGY), Korean electronics major Samsung and Japanese automaker Toyota (TM).
SPDR Portfolio Emerging Markets ETF
- Type: Emerging markets equity
- Assets under management: $4.6 billion
- Dividend yield: 2.8%
- Expenses: 0.11%
Low costs will continue to be a theme among these SPDR ETFs, continuing with the SPDR Portfolio Emerging Markets ETF (SPEM, $38.24). SPEM, another of State Street's suite of Portfolio ETFs, charges just $11 per $10,000 invested for passive exposure to emerging markets stocks.
The ETF itself tracks the performance of the S&P Emerging BMI Index, a market-cap-weighted index (the bigger the stock, the more assets are invested in it) that buys EM stocks – currently, nearly 2,500 of them spread across about 30 different countries. China is top dog at a whopping 36% of assets, which isn't unusual in an emerging markets ETF. It's followed by Taiwan (14.3%), India (12.6%) and Hong Kong (9.1%). As for the top three sectors, you're plugged into consumers, with discretionary stocks on top at 20.1% of the portfolio, followed closely behind by financials (19.4%) and information technology (14.7%).
SPEM, launched in March 2007, is better than roughly two-thirds of its competition over the trailing three- and five-year periods. The fund is trailing its developed-market counterpart, SPDW, over the past decade, but the sheer growth potential of emerging markets should change that relationship over the next 10 years.
Consumer Discretionary Select Sector SPDR Fund
- Type: Sector (Consumer discretionary)
- Assets under management: $16.6 billion
- Dividend yield: 1.0%
- Expenses: 0.13%
Some of the best SPDR ETFs are State Street's oldest – funds that provide investors to slices of the S&P 500. They're the Select Sector SPDRs, which focus on the 11 sectors that make up the index.
Consumer Discretionary Select Sector SPDR Fund (XLY, $152.99) is one of the largest sector ETFs in terms of assets under management, with $16.6 billion. And it's an excellent play on the "Main Street" economy. XLY tracks the S&P 500's consumer discretionary sector, which includes retail, hospitality and … well, many other industries hurting because of COVID-19.
Long-term, however, this is a strong performer. Over the past 15 years, the XLY has delivered total returns (price plus dividends) of 12.8% annually, which is about 3.2 percentage points better than the S&P 500.
This is anything but a well-balanced fund. In addition to investing in just one sector, the XLY's top 10 holdings account for a massive 67% of assets; the remaining 51 holdings split the rest. And top holding Amazon.com alone accounts for 22% of assets. Other top holdings include Home Depot (HD, 11.9%) and McDonald's (MCD, 6.7%).
If you're not a fan of top-heavy ETFs, and especially if you don't like Amazon.com, XLY just isn't for you. But in general, as long as you're bullish on the American consumer, there's plenty to like about this SPDR ETF.
SPDR S&P Kensho New Economies Composite ETF
- Type: Thematic (Innovative companies)
- Assets under management: $1.2 billion
- Dividend yield: 0.8%
- Expenses: 0.20%
Whereas XLY is part of the conventional sector system, State Street lists the SPDR S&P Kensho New Economies Composite ETF (KOMP, $46.13) in a group of "21st Century" sectors. Traditionally, though, this kind of fund is considered "thematic" – investing in a theme that encompasses more than one sector.
KOMP, a passive ETF tracking the performance of the S&P Kensho New Economies Composite Index, is about investing in innovative companies that are disrupting traditional industries by leveraging semiconductor advancements, artificial intelligence, robotics, automation and other new-economy businesses.
The index comprises 16 sub-indices representing innovation themes such as autonomous vehicles, 3D printing and more. The holdings for each sub-index are considered "Core" (the index's objective is principal to the company's strategy) or "Non-Core" (the objective isn't principal to the company's strategy; say, a company whose products are part of the supply chain). Those considered "Core" are overweighted compared to "Non-Core" stocks at each rebalancing; within the "Core" and "Non-Core" subsets, all stocks are equally weighted.
That's a long way of saying stocks that are more relevant to KOMP's theme have more impact on the fund than stocks that are less relevant.
KOMP has 393 holdings with a weighted average market cap of $81.6 billion, so these aren't all small companies by any means. And while the ETF is considered a U.S. fund, a quarter of the portfolio's assets are invested in companies outside the U.S, in countries including China, Canada and Switzerland.
Top sub-industries at the moment include semiconductors (7.9%), application software (7.8%) and automobile manufacturers (5.7%). Top holdings include Chinese electric-vehicle manufacturer Nio (NIO), Zoom Video (ZM) and Overstock.com (OSTK).
SPDR Portfolio Aggregate Bond ETF
- Type: Fixed income
- Assets under management: $5.5 billion
- SEC yield: 2.6%*
- Expenses: 0.04%
While interest rates are in the basement, bond funds and other fixed-income strategies still make sense for the average investor. That's especially true if you're close to retirement because you don't want to have all of your investments in risky assets.
The SPDR Portfolio Aggregate Bond ETF (SPAB, $30.62) is a cheap-and-easy way to get that kind of exposure.
The SPAB tracks the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. This index invests in U.S. dollar-denominated investment-grade bonds, government bonds, mortgage pass-through securities, and commercial mortgage-backed securities (MBSes) sold in the U.S.
The SPDR ETF's nearly 6,000 securities have at least one year of maturity remaining, with $300 million or more of outstanding face value. The average maturity of the portfolio is about eight years, and duration (a measure of risk) is about six years, implying that SPAB's portfolio would decline about 6% for every 1-percentage-point hike in interest rates.
But it's a safe portfolio of bonds that's completely investment-grade in nature. Nearly 70% of the portfolio's holdings are invested in Aaa-rated bonds (the top overall rating), with another 15% or so in Aa or A, and the rest in Baa. Treasuries are the biggest component at 37% of assets, followed by mortgage-backed securities (25.8%) and corporate bonds of industrial companies (17.1%).
Even if SPAB only represents a small portion of your portfolio, it should lower the overall risk.
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
SPDR SSGA Global Allocation ETF
- Type: Asset allocation
- Assets under management: $255.7 million
- Dividend yield: 2.6%
- Expenses: 0.35%
The SPDR SSGA Global Allocation ETF (GAL, $39.80) is an all-in-one solution for those seeking the most spartan of portfolios.
GAL is an "asset allocation" fund, which means it invests across several assets, including stocks, bonds and commodities. And unlike the rest of the best SPDR ETFs, this one is a "fund of funds" – one actively managed by SSGA Funds Management, State Street's investment management business.
SPDR SSGA Global Allocation ETF typically invests 60% of its assets in stocks (though that can vary), with the rest going toward fixed income, commodities or cash. Also, GAL generally will invest about 30% of its assets in countries outside the U.S.
GAL's primary benchmark is the MSCI ACWI IMI Index, while its secondary benchmark is the Bloomberg Barclays U.S. Aggregate Bond Index, the same benchmark as the aforementioned SPAB. But neither is a perfect comparison – this ETF is effectively an entire portfolio in a single fund that investors, if they chose, could use as their lone holding.
SPDR SSGA Global Allocation ETF currently has 35% of its weight in U.S. equities, another 27% in international stocks, 16% in U.S. bonds, 10% in high-yield debt, 5% in Treasury Inflation-Protected Securities (TIPS), 4% in commodities, 2% in cash and the rest in emerging markets debt. It does so by investing in various ETFs, including the aforementioned SPY and SPDW, as well as other funds, such as the SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB).
The good news is, GAL will get you invested in most of what you need to create a well-balanced portfolio. However, where it might turn off some investors is the allocations it makes to each – many investors might want to be more heavily invested in stocks, while others might want more exposure to bonds and/or commodities. To those, you're better off mixing and matching various amounts of these and other SPDR ETFs. But if you're looking for a simple, diversified and low-cost solution, GAL certainly fits the bill.