[originally published Jan. 29, 2013]
The SPDR S&P 500 ETF (SPY) is twenty years old today. It became the very first U.S. listed exchange traded fund ("ETF") on January 29, 1993. About a million shares changed hands that first day, with SPY closing at $43.94. SPY was designed to have a price approximately 10% of the S&P 500, which closed that day at 438.78. Today, twenty years later, the S&P 500 closed at 1507.84 and SPY closed at $150.66 on 105 million shares traded. Not much drift or tracking error there, even after 5,000 days of trading.
Looking purely at price, that represents a +6.35% annual return. With dividends reinvested, the figure jumps to +8.35%. In other words, for the past 20 years, 76% of the gains in SPY and the S&P 500 came from capital appreciation while 24% came from dividends and their subsequent reinvestment. Far short of the 40% contribution from dividends that is often quoted. One could argue the 24% figure should be reduced further to account for price appreciation of those reinvested dividends.
SPY was the first. It must have been a good idea because another 1,760 exchange traded products followed in its footsteps (as of 1/29/2013). Including SPY, 1514 ETFs and 247 ETNs have been launched in the U.S. However, with 317 closures, only 1,444 are still listed for trading today.
Besides being the first, SPY is also the largest and most actively traded ETF. Its $128 billion in assets represents 9.1% of the approximately $1.4 trillion in U.S.-listed ETPs.
Trading in SPY averaged more than 144 million shares a day in December, that's $20.6 billion a day in dollar volume. On a percentage basis, SPY's dollar volume represented 36.4% of the $56.7 billion daily average in December.
Given all that SPY represents, investors are quick to overlook its faults. For example, most ETFs make dividend payments to shareholders four business days after the ex-dividend date. However, SPY holds on to those dividends for up to six weeks. SPY is no longer the only S&P 500 ETF, nor is it the cheapest. A case could be made that it is probably no longer the best S&P 500 ETF. However, you can't argue with success. The money keeps rolling in. Happy birthday SPY.
Disclosure: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.