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 141 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 $391 billion. It is celebrating its 30th anniversary in 2023. SPY launched the ETF era and investors are better for it.
Are SPDR ETFs a good investment?
For investors, 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 upheaval we've seen already in 2023. We're not even halfway through the year and investors have already been hit by several bank failures, higher interest rates, lower earnings growth, significant tech layoffs and volatile markets. That's a lot to absorb.
Heading into 2023, investors expected "the economy to falter, corporate profits to plunge, and job losses to rise due to the lag effects of aggressive Fed rate hikes," State Street Global Advisors stated in its 2023 market outlook. "This potential recession is the most anticipated in modern history."
Given the strength of the labor market, most economists now expect a recession to be short and mild, if one even occurs. And one of the silver linings to a slowing economy, writes Kiplinger economist David Payne in his forecast for gross domestic product (GDP), is a continued decline in inflation. "If inflation does come down as expected, then the Fed might be willing to actually cut interest rates next year," Payne says.
For investors focused on the long term vs the day-to-day of the market, here are seven 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 offers up options for just about every core portfolio objective.
Data is as of May 22. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
Energy Select Sector SPDR ETF
- Assets under management: $35.5 billion
- Dividend yield: 3.9%
- Expenses: 0.10%, or $10 annually for every $10,000 invested
The energy sector came to life in 2021 as oil and natural gas prices increased alongside rising demand. As a result, the Energy Select Sector SPDR ETF (XLE, $79.31) delivered a total return (price plus dividends) of 53.3% in 2021 and 64.2% in 2022. As a result of the sector's strong performance over the past two years, the XLE has the best three-year annualized total return of all 11 S&P 500 sectors through April 30.
Oil prices, however, have come down from their March 2022 13-year high of $130 per barrel. A barrel of West Texas Intermediate (WTI) now trades around the $73 per-barrel mark as investors worry the odds of recession are far more likely after the bank troubles in recent months.
"Broader economic weakness remains in focus for crude, as fears of a stumbling financial sector are beginning to lower economic growth expectations," said Robbie Fraser, manager of Global Research & Analytics at Schneider Electric, as reported by MarketWatch. "Crude demand is closely tied to overall GDP growth and so continues to take notes from the general economy."
XLE allows investors to gain exposure to companies in the oil & gas industry – whether it be actual producers or equipment and services providers. It tracks the performance of the Energy Select Sector Index, which represents the S&P 500's energy stocks.
The energy ETF has 23 holdings, with the top 10 stocks accounting for nearly three-quarters of its $35 billion in total assets. Exxon Mobil (XOM) and Chevron (CVX) make up 42% of XLE, indicating the fund is mostly a bet on Big Oil.
The weighted average market cap of the 23 energy stocks in this SPDR ETF is $181.9 billion, with the largest being Exxon Mobil at $424 billion and the smallest, APA (APA), at $10.3 billion.
XLE is one of the best SPDR ETFs to bet on energy because of its concentrated bet on some of the world's largest oil and gas producers.
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Financial Select Sector SPDR ETF
- Assets under management: $29.2 billion
- Dividend yield: 2.1%
- Expenses: 0.10%
The Financial Select Sector SPDR ETF (XLF, $32.66) is another 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's performance, due to recent troubles for regional bank stocks, hasn't delivered to shareholders. According to Yardeni Research, the S&P 500 financials sector is down 4.8% year-to-date through May 22, second only to energy as the worst-performing sector.
However, where the ETF gets its revenge on its energy stablemate is over the long haul. The Financial Select Sector SPDR ETF has a 10-year annualized return of 9.4%, considerably higher than XLE's average annual return of 3.5% over the past decade.
This SPDR fund has 72 holdings with a weighted average market cap of $247.2 billion. The ETF's top 10 positions account for 56% of its $29.2 billion in total assets. Warren Buffett's holding company Berkshire Hathaway (BRK.B) is the only stock with a weighting above 10%, currently at 13.2%.
The top three industries by weight in XLF are financial services (34.1%), banks (24.1%), and capital markets (21.2%).
Regarding growth and valuation, XLF's estimated earnings per share over the next three to five years is 11.1%. The average holding has a price-to-cash flow (P/CF) ratio of 9.3 and a price-to-earnings (P/E) ratio of 13.4.
Much like XLE, 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: $228.4 million
- Dividend yield: 2.2%
- 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 $228 million in total assets, the SPDR S&P 1500 Value Tilt ETF (VLU, $141.79) 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/CF, price-to-sales (P/S) and price-to-book (P/B) 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 1,489 names in its portfolio. The index's weighted average market cap is $286.0 billion, making it a decidedly large-cap investment. The top 10 holdings account for 18% of its $228 million in total net assets.
Blue chip stocks Berkshire Hathaway, Apple (AAPL) and JPMorgan Chase (JPM) are the three largest holdings currently in SPDR S&P 1500 Value Tilt ETF, with weights of 2.5%, 2.0%, and 2.0%, 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 S&P Kensho New Economies Composite ETF
- Assets under management: $1.7 billion
- Dividend yield: 1.5%
- Expenses: 0.20%
The SPDR S&P Kensho New Economies Composite ETF (KOMP, $42.04) 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 550 companies in its portfolio. The top 10 holdings account for 10% of its $1.7 billion in total net assets. Its biggest weightings are Bruker (BRKR), a life science research and diagnostics company, at 1.8%, and environmental monitoring firm Teledyne Technologies (TDY) at 1.7%.
The top three industries by weight are aerospace & defense (10.3%), semiconductor stocks (6.5%), and healthcare equipment (6.3%).
The turnover, due to the growth nature of the ETF, is 61%. This means it turns two-thirds of its holdings every year.
Performance-wise, KOMP is up around 7% for the year-to-date. Longer term, the SPDR ETF has averaged an annual return of 9.1% since its October 2018 inception.
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SPDR Portfolio Developed World ex-US ETF
- Assets under management: $16.1 billion
- Dividend yield: 2.8%
- Expenses: 0.04%
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, $32.96) 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 companies from 24 countries represented in the index as of Nov. 30, 2022. The top three countries by weight currently are Japan (21.6%), the United Kingdom (12.3%) and Canada (9.6%).
SPDW has nearly 5,600 holdings with a weighted average market cap of $60.6 billion. The three top sectors by weight are financials (17.5%), industrials (16.6%) and consumer discretionary stocks (11.5%). Not only is it diversified among countries and sectors, but it's also diversified among companies. The top 10 holdings account for just 10.7% of the ETF's $14.6 billion net assets.
It charges just 0.04%, a very inexpensive way to avoid home-country bias.
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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, $40.57) 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 bank failures have amplified these concerns.
Investors willing to hold for the long haul and ride out the choppy waters 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 249 holdings, including Amazon.com (AMZN) warehouse owner Prologis (PLD) and data center REIT Equinix (EQIX). The top three sectors by weight are industrial/office (31.7%), retail (17.3%) and residential (15.2%). The biggest country exposure is easily the U.S. (68.7%), followed by Japan (9.8%) and the U.K. (4.2%). The top 10 holdings account for 34% of the ETF's net assets.
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SPDR Portfolio Short Term Treasury ETF
- Assets under management: $5.5 billion
- SEC yield: 1.9%*
- Expenses: 0.06%
It's always good to include one fixed-income ETF in a core portfolio. But, given higher interest rates and recent bank jitters, the comfort of a U.S. government-backed fund hits the right note.
That's why the SPDR Portfolio Short Term Treasury ETF (SPTS, $29.06) 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 1.91 years, an average yield to maturity of 4.45%, and an average coupon of 2.69%. 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 41% at 2-3 years. Just 3.3% are 0-1 year. 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.
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