SPDRs and Diamonds

By Will McClatchy

Mutual funds are not the only way to invest in domestic indexes. Increasingly popular are so-called SPDRs or Standard & Poor's Depository Receipts, which track indexes just like a fund but trade like a stock on the American Stock Exchange.

Convenience and flexibility are their hallmark. Vis-à-vis mutual funds, SPDRs have some advantages. They can:

  • Trade at any brokerage firm
  • Be sold instantly in a falling market, not at the close of the day
  • Be margined at a brokerage firm
  • Result in slightly lower capital gains

Indexers with closet day trading tendencies or general nervousness about the market should find SPDRs appealing. It is possible to get in and out of these products many times each day. In a volatile market the knowledgeable or lucky investor could prosper, and an anxious investor can find comfort knowing it is easy to exit the market. But this is not typical of index investors, who tend to buy and hold.

Flavors

Various flavors of SPDRs (and the next-of-kin, Diamonds) include:

  • SPDRs (symbol: SPY), plain vanilla S&P 500
  • MidCap SPDRs (symbol: MDY), follows S&P MidCap 400
  • Select Sector SPDRs (9 funds, 9 symbols), which carve up the S&P 9 different ways
  • Diamonds (symbol: DIA), which tracks the Dow Jones Industrial Average
Like an index mutual fund, the above instruments track their indexes closely but not perfectly.
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