Slicing and Dicing the S&P 500
Just as you can get a Big Mac without special sauce and a Coke with no sugar, you can buy the Standard & Poor's 500-stock index without McDonald's and Coca-Cola. Investors who want exposure to individual segments of the S&P can now choose among nine open-end index funds that track industry groups.
Like sector mutual funds, the new Select Sector SPDR funds, launched in December, let you bet on parts of the economy, from technology to utilities. They're modeled after Standard & Poor's Depositary Receipts, unit trusts that track the entire S&P 500 and trade on the American Stock Exchange. Among the new SPDRs, which are also listed on the Amex, the tech offering contains 79 stocks from the S&P 500, including Microsoft. Because Select Sector SPDRs are pegged to an index, they have lower operating costs than industry-specific mutual funds. Their expense ratios are 0.65%, vs. 1.86% for the average industry fund, Morningstar says.
You can trade SPDRs throughout the day, while mutual-fund prices are determined only at the close of trading. And unlike mutual funds, SPDRs can be sold short. So if you like index investing but worry that tech stocks are too hot, you could construct a customized S&P index fund by buying an S&P 500 SPDR and selling the tech SPDR short. Or you could build an S&P 500 fund overweighted in certain sectors by buying industry SPDRs along with the basic index fund. But remember: SPDR trades are subject to brokerage commissions. For prospectuses and other info, call 800 THE-AMEX or go to www.amex.com.
By Anne Tergesen
Updated Jan. 7, 1999 by bwwebmaster
Copyright 1999, Bloomberg L.P.