S&P 500 - Investing

Investing

Many index funds and exchange-traded funds attempt to replicate (before fees and expenses) the performance of the S&P 500 by holding the same stocks as the index, in the same proportions. Many other mutual funds are benchmarked to the S&P 500. Consequently, a company whose stock is added to the list of S&P 500 stocks may see its stock price rise, as the managers of index funds normally choose to purchase that company's stock in order to continue tracking the S&P 500 index. Some examples include Vanguard's S&P 500 Index Fund (VOO), iShares S&P 500 ETF (IVV) and SPDR's S&P 500 ETF (SPY). Several mutual fund managers also provide index funds that track the S&P 500, the first of which was The Vanguard Group's Vanguard 500 in 1976. Many retirement plans offer such funds. For example, the Thrift Savings Plan's C Fund tracks the total return S&P 500 index.

In addition to investing in a mutual fund indexed to the S&P 500, investors may also purchase shares of an exchange-traded fund (ETF) which represents ownership in a portfolio of the equity securities that comprise the Standard & Poor's 500 Index. One of these ETF's is called the Standard & Poor's Depositary Receipts; NYSE: SPY, originating from a chain of ETFs called the SPDRs, pronounced "spiders", and is issued by SSgA State Street Global Advisors. Typical volume for the SPY SPDR averages between 300-400 million shares per day; the highest of any US stock traded on any exchange.

On October 10, 2008, trading volume for the SPY SPDR surpassed 871 million shares; with a closing price of $88.50, the monetary value of traded shares which changed hands exceeded an astounding $77 billion for the day. BlackRock offers the iShares S&P 500 NYSE: IVV, which is similar to the SPDRs, but is structured differently. Both the SPDRs and the iShares have a management expense ratio of under 0.1% a year; making them an efficient proxy for the underlying index, while achieving a performance close to the S&P 500 (minus fees and expenses).

Through RydexShares, fund manager Rydex also offers an ETF, the S&P Equal Weight NYSE: RSP, which provides equal exposure to all the companies in the S&P 500. In addition, Rydex offers other related S&P 500 index ETFs such as the 2x NYSE: RSU, which attempts to match the daily performance of the S&P 500 by 200% and the Inverse 2x NYSE: RSW, which attempts to match the inverse daily performance by 200%. More heavily traded ProShares issued by ProFunds offer Inverse Performance NYSE: SH for a bearish strategy on the index, Inverse 2x Performance NYSE: SDS, and 2x Performance NYSE: SSO. For additional leverage, ProFunds also offers 3x Performance NYSE: UPRO, which attempts to match the daily performance of the S&P 500 by 300% as well as Inverse 3x Performance NYSE: SPXU, which attempts to match the inverse daily performance of the S&P 500 by 300%.

In the derivatives market, the Chicago Mercantile Exchange (CME) offers futures contracts that track the index and trade on the exchange floor in an open outcry auction, or on CME's Globex platform, and are the exchange's most popular product. Additionally, the Chicago Board Options Exchange (CBOE) offers options on the S&P 500 as well as S&P 500 ETFs, inverse ETFs and leveraged ETFs.