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 exactly that.
State Street now boasts 137 ETFs under the SPDR nameplate. The ETF provider, which already has low fees, recently announced that it was cutting fees on its sector ETFs by two basis points (a basis point is one-one hundredth of a percentage point) to 0.10%.
This could help investors decide where to put their money as we navigate a year that many analysts believe won’t be nearly as rewarding as 2021 was.
“As the bull market transitions from 2021 to 2022, a number of risks need to be carefully monitored,” write State Street Global Advisors strategists in their 2022 ETF Market Outlook. “Supply chain disruptions across four dimensions – products (autos, semiconductors), transportation (shipping containers, trucking), labor shortages and energy shortfalls – continue to be a challenge for the global economy. Bottlenecks have contributed to higher and more persistent inflation than most market observers and central bankers had been expecting.”
Stubborn inflation, rising interest rates and COVID-19 are three issues that present investors with challenges in 2022, while Russia’s invasion of Ukraine only adds more uncertainty to the mix.
Fortunately for investors, State Street’s SPDR ETFs offer a broad range of options that allow investors to build a core portfolio while also taking occasional shots to capture some of the economic benefits derived from innovation.
Read on as we examine seven of the best SPDR ETFs to buy and hold for at least the next few years, if not throughout your investing horizon. 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 March 1. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
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Energy Select Sector SPDR ETFGetty Images
Type: Sector (Energy)Assets under management: $36.2 billionDividend yield: 3.3%Expenses: 0.10%, or $10 annually for every $10,000 investedThe energy sector came to life in 2021 as oil and natural gas prices moved higher alongside increasing demand. The Energy Select Sector SPDR ETF (XLE, $71.29) has delivered a total return (price plus dividends) of 51.1% in the past year. And for the first time in a long while, the energy sector was the S&P 500’s best performer.
This momentum has been carried into the new year. According to Yardeni Research, the S&P 500 energy sector is up 26.5% through Feb. 28, and is the only sector in positive territory for the year-to-date.
And this upside is likely to continue in the near term due to the global response to Russia’s invasion of Ukraine.
“A short-term spike in oil prices to $120 per barrel is possible because sanctions against Russia would curtail its ability to export oil and that would likely reduce global supply,” says Tim Pagliara, chief investment officer of Tennessee-based wealth management firm CapWealth. “Oil prices are likely to see the largest reaction to the Russia/Ukraine uncertainty – more so than stocks and bonds.”
This would certainly benefit XLE, which seeks to gain exposure to companies in the oil & gas industry – whether it be actual producers, providers of equipment or service businesses. It tracks the performance of the Energy Select Sector Index, which represents the S&P 500’s energy companies.
The energy ETF currently has 21 constituents with the top 10 holdings accounting for 76% of its $36 billion in total assets. Exxon Mobil (XOM) and Chevron (CVX) account for 44% of XLE, suggesting it’s a bet on Big Oil.
The weighted average market cap of the 21 energy stocks in this SPDR ETF is $161.0 billion with the largest Exxon Mobil at $335 billion and the smallest is APA (APA) at $12.9 billion.
As sector bets go in 2022, XLE is a good one.
Learn more about XLE at the SPDR provider site.
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Financial Select Sector SPDR ETFGetty Images
Type: Sector (Financial)Assets under management: $44.6 billionDividend yield: 1.6%Expenses: 0.10%The Financial Select Sector SPDR ETF (XLF, $37.10) is the second 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 wasn’t quite as good as XLE in 2021, but shareholders still did well, with the fund ending the year up 34.8%. However, where the ETF gets its revenge on its energy stablemate is over the long haul. The Financial Select Sector SPDR ETF has a five-year annualized return of 13.1%, considerably higher than XLE’s annual return of 2.7% over the past five years, through Jan. 31, 2022.
This SPDR fund has 67 holdings with a weighted average market cap of $224.7 billion. The ETF’s top 10 holdings account for 53% of its $46.4 billion in total assets. Warren Buffett’s holding company Berkshire Hathaway (BRK.B) and big bank JPMorgan Chase (JPM) are the only two holdings with a weightings above 10% – at 13.1% and 10.2%, respectively.
In terms of growth and valuation, XLF’s estimated earnings per share over the next three to five years is 10.1%. The average holding has a price-to-cash flow (P/CF) ratio of 8.9x and price-to-earnings (P/E) ratio of 10.9x.
As for the performance of the Financial Select Sector SPDR ETF, it has been hit with broad-market headwinds in recent weeks and is now down 5% for the year-to-date. Still, this is outperforming the S&P 500 Index – and could offer investors a chance to get in on one of the best SPDR ETFs at a discount.
Learn more about XLF at the SPDR provider site.
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SPDR S&P 1500 Value Tilt ETFGetty Images
Type: U.S. equityAssets under management: $275.9 millionDividend yield: 1.9%Expenses: 0.12%Value stocks started to make a comeback late in 2021 after years in the wilderness. Rising interest rates have something to do with that.
Investors tend to value, no pun intended, growth stocks using the net present value (NPV) model where estimated future earnings are discounted back to the present. To make this calculation, a discount rate such as a 10-year Treasury bill yield is used to accomplish this task. As rates move higher, the NPV of those earnings moves lower.
What’s bad for growth is good for value. That’s why the SPDR S&P 1500 Value Tilt ETF (VLU, $148.19) made this list of SPDR ETFs despite having just $280 million in total assets.
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, as well as those that pay dividends, are given a composite value based on the last five years of data.
It 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 1,414 names in its portfolio. The index’s weighted average market cap is $291.6 billion, making it a decidedly large-cap investment. The top 10 holdings account for 19% of its $280.8 million in total net assets.
Berkshire Hathaway, Apple (AAPL) and Walmart (WMT) are the SPDR S&P 1500 Value Tilt ETF’S three largest holdings with weightings of 2.9%, 2.3% and 2.2%, respectively.
If you’re interested in a diversified portfolio of stocks with a value tilt, VLU is it.
Learn more about VLU at the SPDR provider site.
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SPDR S&P International Small Cap ETFGetty Images
Type: Developed-markets equityAssets under management: $795.5 millionDividend yield: 3.0%Expenses: 0.40%Not only does the SPDR S&P International Small Cap ETF (GWX, $34.66) provide global diversification, it also gives investors something other than large-cap stocks. The ETF tracks the performance of the S&P Developed Ex-U.S. Under USD2 Billion Index.
While the name of the index is a mouthful, it really just means that it’s a collection of small-cap stocks with a market cap between $100 million and $2 billion. To be included in the index, which is rebalanced quarterly, a stock must be located in a country on the BMI Developed World Series list.
GWX has 2,446 holdings and a weighted average market cap of $1.06 billion. Since its inception in April 2007, it has had an annual total return of 3.5% through Jan, 31, 2022. In recent years, it’s delivered a better performance. For example, over the past three years, its annual return is 8% through the end of January.
If you want a focused ETF, GWX is not your cup of tea. Its top 10 holdings account for 2.2% of the ETF’s $797 million in total net assets, with Canadian oil and gas name Baytex Energy (BTEGF) the biggest weighting at 0.25%. In terms of sector representation, four are weighted at more than 10%: Industrials (19.2%), technology (13.2%), consumer discretionary (12.7%) and basic materials (11.5%).
Geographically, by weight, the top three countries represented in GWX are Japan (34.2%), South Korea (13.1%) and Canada (9.7%). Even though the U.S. markets are excluded from the index, domestic stocks account for 1.5% of the portfolio.
Learn more about GWX at the SPDR provider site.
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SPDR S&P Kensho New Economies Composite ETFGetty Images
Type: Thematic (Innovative companies)Assets under management: $1.8 billionDividend yield: 1.7%Expenses: 0.20%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.
“Kensho leverages artificial intelligence capabilities to look beyond revenue and balance sheets to unearth innovative companies across different sectors,” the fund’s marketing brief explains. “The S&P Kensho Indices use proprietary AI to select stocks and then apply a quantitative weighting methodology to create the final holdings, which results in a modified equal-weighted profile that has exposure evenly throughout the cap spectrum.”
The SPDR S&P Kensho New Economies Composite ETF (KOMP, $50.64) is one of six thematic ETFs from S&P Kensho. It seeks to provide investors with exposure to innovation trends such as alternative finance, smart borders, cyber security, and many more.
KOMP 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 composed of 22 sub-indexes representing New Economy companies. The index is rebalanced semi-annually on the third Friday in June and December.
The fund currently has 568 companies in its portfolio. The top 10 holdings account for 9% of its $1.8 billion in total net assets. KOMP’s biggest weightings at present are environmental monitoring firm Teledyne Technologies (TDY) and defense stock Elbit Systems (ESLT) at 1.1% apiece.
The top three industries by weight are application software (10.8%), semiconductors (7.3%) and aerospace & defense (5.9%). From a sector perspective, technology accounts for 41.1% of the holdings. The next highest are industrials (17.1%) and healthcare (14.0%).
The turnover, due to the growth nature of the ETF, is 67%. This means it turns two-thirds of its holdings every year.
Performance-wise, the SPDR S&P Kensho New Economies Composite ETF has struggled of late, due to the growth-heavy nature of its portfolio. However, it’s strength over the long term is hard to deny. Since its inception in October 2018, KOMP has had an annual return of 19.2% through Jan. 31, 2022.
Learn more about KOMP at the SPDR provider site.
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SPDR MSCI ACWI ex-US ETFGetty Images
Type: Developed and emerging-markets equityAssets under management: $1.8 billionDividend yield: 2.8%Expenses: 0.30%The SPDR MSCI ACWI ex-US ETF (CWI, $27.10) invests in mid- and large-cap stocks in developed and emerging markets. It covers approximately 85% of the global equity market outside the U.S. The weighted average market cap is $91.6 billion.
CWI tracks the performance of the MSCI ACWI ex USA Index. It is one of the most densely populated SPDR ETFs featured here, with 1,343 holdings. Estimates are for the fund’s holdings to are expected to grow earnings by almost 15% annually over the next three to five years.
Buy-and-hold investors will like CWI.
It has a turnover of just 5%, which means it turns the entire portfolio once every 20 years. The ETF is also diversified with the top 10 holdings accounting for just 12% of its $1.8 billion in total assets.
It’s fair to say all of the companies in the top 10 are familiar to American investors, with Taiwan chipmaker Taiwan Semiconductor Manufacturing (TSM), Swiss candymaker Nestle (NSRGY) and Chinese holding firm Tencent (TCEHY) taking the top three spots.
The three biggest sectors are financials (19.9%), technology (12.3%) and industrials (12.0%). Geographically, the top three countries represented are Japan (14.3%), the U.K. (10.1%) and China (8.8%).
Since its inception in January 2007, CWI’s annual return is 4.3% through Jan. 1, 2022. Over the past three years, it has averaged a 9.4% annual gain.
Learn more about CWI at the SPDR provider site.
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SPDR Portfolio Short Term Corporate Bond ETF Getty Images
Type: Fixed incomeAssets under management: $7.7 billionSEC yield: 1.8%*Expenses: 0.04%Rounding this list of SPDR ETFs is the SPDR Portfolio Short Term Corporate Bond ETF (SPSB, $30.55). Of the 38 short-term bond funds tracked by ETF Database, SPSB is the sixth-largest by total assets. Due to rising interest rates and stubbornly high inflation, investors are rethinking their aversion to bond funds.
Citi analyst Scott Chronert believes that assets could move into bond funds as 10-year U.S. bond yields move into positive territory, as reported in The Globe and Mail. The yields moved to -0.67% in late January from -1.12% at the end of 2021, and he believes the rate hikes coming could push them into positive territory, convincing institutional investors to allocate more assets to bonds.
That would help SPSB, which tracks the performance of the Bloomberg U.S. 1-3 Year Corporate Bond Index.
The index is composed of short-term, U.S. dollar-denominated corporate bonds with an investment-grade rating of at least BBB- by Standard & Poor’s and Fitch or Baa3 by Moody’s. In addition, to qualify for inclusion, a bond must have $300 million or more of outstanding face value. The index is reconstituted monthly on the last business day.
Since its inception in December 2009, SPSB has had an annual return of 2.0% through Jan. 31, 2022. With markets currently volatile, institutional investors might jump all over these bonds.
The top three holdings are familiar names: Boeing (BA) at 0.6%, HSBC Holdings (HSBC) at 0.6% and Morgan Stanley (MS) at 0.5%. The top 10 holdings account for just 5% of its $7.6 billion in total assets.
* 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.
Learn more about SPSB at the SPDR provider site.