SPDR? ETF? What’s the difference?

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Q. What is the difference between SPDRs and ETFs?
— Trying to learn

A.  We’re glad you’re asking. No one should invest in something they don’t understand.

“ETF” stands for exchange-traded fund.

“The underlying assets owned by an ETF are divided into shares for investors to purchase,” said Alison Williams, a certified financial planner with Stonegate Wealth Management in Oakland. “Shareholders own shares of the ETF, but do not directly own the underlying assets.”

This type of investment trades like a stock, so when you buy or sell, you are taking advantage of the price at that moment, as opposed to a mutual fund, which is valued at the end of the day, Williams said.

Most ETF’s track an index. That means the holdings within an ETF are related to each other – stocks, commodities, futures, bonds, etc. – and can be expected to perform similarly to the asset class they’re invested in, with the added advantage of diversification, she said.

These are attractive investments because of low fees, favorable tax treatment and high liquidity.

You’ll see “SPDR” with “ETF,” which stands for “Standard & Poor’s depositary receipt exchange-traded fund. ”

These are a family of ETFs originally based on the S&P 500 index, Williams said.

“As their success grew, since their introduction in 1993, SPDRs expanded,” Williams said. “There are now SPDR ETFs that target certain industry sectors such as energy or healthcare, or different capitalization weightings to give a greater consideration to smaller companies,” she said.

Williams said SPDRs have branched out even further to include other large indexes, such as the Dow Jones Industrial Average (DJIA) or the Russell 2000 Index.

“Although the S&P 500 isn’t the index tracked, the name stuck. SPDRs are often considered the Rolls Royce of the indexing strategy,” she said. “It isn’t so much a difference between SPDRs and ETFs as SPDR’s are a specific type or brand of ETF.”

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This post was first published in January 2017.

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