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By Will Ashworth
last updated
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 precisely that.
State Street now boasts 177 ETFs under the SPDR nameplate. The most famous, not to mention the largest SPDR, is the S&P 500 ETF Trust (SPY), with net assets of $481 billion. SPY launched the ETF era roughly 30 years ago and investors are better for it.
Are SPDR ETFs a good investment?
For investors wondering where to invest, State Street's SPDR ETFs offer a broad range of options that allow them to build a core portfolio while taking occasional shots to capture some of the economic benefits of innovation.
This is especially important amid the upheaval we've seen in recent years. In 2023 alone, "global markets experienced a variety of surprises and shocks," writes Lori Heinel, global chief investment officer at State Street Global Advisors in the firm's 2024 market outlook. These included "elevated inflation, muted growth, an abrupt banking crisis, and the continuation of the sharpest monetary policy tightening in decades."
Fortunately, most economists now expect the U.S. to avoid a recession and any economic slowdown will be short-lived. Kiplinger economist David Payne doesn't expect any more interest rates from the Federal Reserve. "However, it is also not likely to make its first rate cut until its May policy meeting because it is still determined to combat inflation," Payne writes in his forecast for gross domestic product (GDP).
For investors focused on the long term vs the day-to-day of the market, here are six of the best SPDR ETFs to buy and hold for at least the next few years. Of course, depending on your personal needs, you might load up on certain funds while ignoring others. But this list of the best ETFs offers up options for just about every core portfolio objective.
Disclaimer
Data is as of January 5. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
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Financial Select Sector SPDR ETF
- Assets under management: $34.3 billion
- Dividend yield: 1.7%
- Expenses: 0.10%, or $10 annually for every $10,000 invested
The Financial Select Sector SPDR ETF (XLF, $37.75) is one of the sector funds on this list of SPDR ETFs. XLF tracks the performance of the Financial Select Sector Index, a collection of financial stocks within the S&P 500 Index.
XLF struggled on the price charts in 2023 as rising interest rates created trouble for regional bank stocks. However, shares have stabilized in recent months and are up about 20% from their late-October lows.
And the ETF has been stellar for shareholders over the long haul. In the past 10 years, for instance, the Financial Select Sector SPDR ETF has accumulated a total return (price change + dividends) of 158%.
This SPDR fund has 72 holdings with a weighted average market cap of $276.3 billion. The ETF's top 10 positions account for 54% of its $34 billion in total assets. Warren Buffett's holding company Berkshire Hathaway (BRK.B) is the only stock with a weighting above 10%, currently at 12.7%.
The top three industries by weight in XLF are financial services (32.1%), banks (25.5%), and capital markets (22.5%).
Regarding growth and valuation, XLF's estimated earnings per share over the next three to five years is 10.9%. The average holding has a price-to-book (P/B) ratio of 2.0 and a price-to-earnings (P/E) ratio of 15.4.
Investing in XLF at this point offers investors a chance to get in on one of the best SPDR ETFs at a discount.
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SPDR S&P 1500 Value Tilt ETF
- Assets under management: $291.1 million
- Dividend yield: 2.0%
- Expenses: 0.12%
Value stocks started to make a comeback late in 2021 after years in the wilderness. But, of course, rising interest rates had something to do with that.
However, the underperformance of value stocks for over a decade has made rising interest rates almost irrelevant as many former value investors moved to index funds.
"Value investing as an industry is dead ...The money has moved from value investors to index funds and it's not coming back," Greenlight Capital founder David Einhorn told CNBC in early 2023.
But not everyone feels the same way, including Warren Buffett, who has long been an advocate of value-based investing. This is because value stocks tend to be "companies that are built with solid balance sheets and provide a steady flow of cash back to shareholders via dividends rather than investing aggressively in expanding their operations," writes Kiplinger contributor Jeff Reeves.
And despite having just $291 million in total assets, the SPDR S&P 1500 Value Tilt ETF (VLU, $159.16) makes an excellent option for investors wanting broader exposure to value stocks. Plus, Morningstar gives it a five-star rating.
VLU tracks the performance of the S&P 1500 Low Valuation Tilt Index, which takes the S&P Composite 1500 Index and applies a value tilt. So, companies with low P/E, P/B, price-to-sales (P/S) and price-to-cash flow (P/CF) ratios and those that pay dividends are given a composite value based on the last five years of data.
The fund then divides the 1,500 names into 20 sub-portfolios based on relatively equal market caps. The individual stocks in those sub-portfolios are then weighted based on their composite valuation. The index is rebalanced annually on the third Friday in April.
The value ETF currently has 1,430 names in its portfolio. The fund's weighted average market cap is $323.8 billion, making it a decidedly large-cap investment. The top 10 holdings account for 18% of its $291 million in total net assets.
Blue chip stocks Berkshire Hathaway, Amazon.com (AMZN) and JPMorgan Chase (JPM) are the three largest holdings currently in SPDR S&P 1500 Value Tilt ETF, with weights of 2.5%, 2.2%, and 2.2%, respectively.
If you're interested in a diversified portfolio of stocks with a value tilt, VLU is tops among the best SPDR ETFs.
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SPDR Portfolio Developed World ex-US ETF
- Assets under management: $18.0 billion
- Dividend yield: 2.7%
- Expenses: 0.03%
Most core ETF portfolios should consider a global fund that excludes U.S. stocks.
That's to avoid "home-country bias," the conscious or unconscious act of sticking to one's own country when selecting investments.
"Just like sports teams recruit the best players, the goal of investing should be to win by using diverse talent. You may not find what you need at home, and to be competitive you need to look across borders," Chicago-based financial services firm Northern Trust stated in a 2022 report on home-country bias. "Diversification is the one 'free lunch' in investing. Adding foreign equity investments to a domestic portfolio helps produce more diversified portfolios and alleviates concentration risks related to investing domestically only."
The SPDR Portfolio Developed World ex-US ETF (SPDW, $33.46) is one of the best SPDR ETFs to give you this diversification. The ETF tracks the performance of the S&P Developed Ex-U.S. BMI (Broad Market Index) Index. This float-adjusted cap-weighted index represents a collection of publicly traded companies based in developed countries other than the U.S. The index is a subset of the S&P Global BMI.
Stocks included in the index must have a float-adjusted market cap of at least $100 million and sufficient six- and 12-month daily volume. Once included in the index, a stock's float-adjusted market cap can drop as low as $75 million.
There are currently companies from 26 countries represented in the fund. The top three countries by weight currently are Japan (21.8%), the United Kingdom (12.3%) and Canada (9.9%).
SPDW has nearly 2,450 holdings with a weighted average market cap of $73.7 billion. The three top sectors by weight are financials (19.1%), industrials (17.0%) and consumer discretionary stocks (11.3%). Not only is it diversified among countries and sectors, but it's also diversified among companies. The top 10 holdings account for just 11% of the ETF's $18 billion net assets.
It charges just 0.03%, a very inexpensive way to avoid home-country bias.
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SPDR S&P Kensho New Economies Composite ETF
- Assets under management: $1.8 billion
- Dividend yield: 1.3%
- Expenses: 0.20%
The SPDR S&P Kensho New Economies Composite ETF (KOMP, $44.42) is one of six thematic ETFs from S&P Kensho. It seeks to expose investors to innovation trends such as alternative finance, smart borders, cybersecurity and many more.
Kensho got its start in 2013. It uses artificial intelligence (AI), machine learning (ML), speech recognition, and other innovative technology to drive fact-based decision-making. S&P Global (SPGI) acquired the company for $550 million in 2018.
The fund tracks the performance of the S&P Kensho New Economies Composite Index, a collection of U.S.-listed companies based in developed and emerging markets that are driving innovation. The index is rebalanced semi-annually on the third Friday in June and December.
"KOMP utilizes natural language processing to scan regulatory filings and identify innovative companies related to more than 20 innovation areas. KOMP's approach not only identifies leading companies in each innovation area, but also seeks to capture the entire ecosystems supporting them," the fund's fact sheet states.
The SPDR S&P Kensho New Economies Composite ETF currently has around 440 companies in its portfolio. The top 10 holdings account for roughly 10% of its $1.8 billion in total net assets. Its biggest weightings are Teledyne Technologies (TDY), a company that makes enabling technologies such as digital imaging sensors, at 1.4%, and intelligence solutions firm Leidos Holdings (LDOS) at 1.3%.
The top three industries by weight are application software (12.7%) aerospace & defense (10.2%) and semiconductor stocks (5.7%).
The turnover, due to the growth nature of the ETF, is 62%. This means it turns two-thirds of its holdings every year.
Performance-wise, KOMP is up about 14% in the past 12 months. Longer term, the SPDR ETF has averaged an annual return of 7.7% since its October 2018 inception.
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SPDR Dow Jones Global Real Estate ETF
- Assets under management: $1.2 billion
- Dividend yield: 3.8%
- Expenses: 0.50%
Following the home-country bias theme mentioned previously, the SPDR Dow Jones Global Real Estate ETF (RWO, $42.91) invests about a third of its $1.2 billion in net assets outside the U.S.
In 2022, commercial real estate lending accelerated off the COVID-19 bottom, generating renewed excitement in the industry. In the fourth quarter, loan originations by dollar volume were up 18% over Q4 2021. However, as interest rates increased, commercial loans slowed early in 2023. The regional bank failures only amplified these concerns.
Still, RWO stabilized in late 2023, and is up about 20% from its October lows. And investors willing hold for the long haul should do right by RWO. The ETF was launched in May 2008, in the middle of the financial crisis. So it's seen a cycle or two.
The SPDR ETF tracks the performance of the Dow Jones Global Select Real Estate Securities Index, a collection of real estate investment trusts (REITs) and real estate operating companies.
To qualify for inclusion in the index, a company must be an equity owner and operator of commercial or residential real estate. Therefore, mortgage REITs are excluded, as are specialty REITs investing in timber, railroads, cell towers, etc. In addition, service providers such as real estate agents and mortgage brokers are also excluded.
Another condition of inclusion is all new constituents must have a minimum float-adjusted market cap of $200 million. And it is out if it falls below $100 million for two consecutive quarters. In addition, new constituents must generate 75% of their annual revenue from owning and operating real estate assets. Existing companies are booted if the percentage drops below 50% or direct mortgage investments rise above 25%.
The SPDR Dow Jones Global Real Estate ETF wants actual real estate owners and operators.
RWO currently has 231 holdings, including Amazon.com warehouse owner Prologis (PLD) and data center REIT Equinix (EQIX). The top three real estate sectors by weight are retail (18.7%), industrial (16.7%) and residential (14.1%). The biggest country exposure is easily the U.S. (70%), followed by Japan (9.0%) and the U.K. (4.1%). The top 10 holdings account for 36% of the ETF's net assets.
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SPDR Portfolio Short Term Treasury ETF
- Assets under management: $5.6 billion
- SEC yield: 4.5%*
- Expenses: 0.03%
It's always good to include one bond ETF in a core portfolio. But, given higher interest rates and uncertainty about a potential economic slowdown, the comfort of a U.S. government-backed fund hits the right note.
That's why the SPDR Portfolio Short Term Treasury ETF (SPTS, $29.00) is on this list of the best SPDR ETFs. SPTS tracks the performance of the Bloomberg 1-3 Year U.S. Treasury Index. The index is updated on the last business day of every month.
It measures short-term investment grade U.S. Treasuries with a remaining maturity of more than one year and less than three, with $300 million or more outstanding. In addition, they must be in U.S. dollars, at a fixed rate, and non-convertible. Inflation-protected Treasuries, known as TIPS, are also excluded.
SPTS has a little over 100 holdings, with an average maturity of 1.96 years, an average yield to maturity of 4.4%, and an average coupon of 2.8%. In terms of years to maturity, more than 56% of the SPDR Portfolio Short Term Treasury ETF's holdings are 1–2 years, with another 44% at 2-3 years. The short duration makes them less sensitive to interest rate fluctuations.
* SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.
Learn more about SPTS at the SPDR provider site.
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Will Ashworth
Contributing Writer, Kiplinger.com
Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he's a keen student of business history. Married and now living in Halifax, Nova Scotia, he's also got an interest in equity and debt crowdfunding.
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