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Looking for Stability? SPDR S&P 500 ETF Trust (SPY) Could Combat Market Volatility


As inflation remains high, the U.S. Federal Reserve once again raised interest rates by 75 basis points. The elevated inflation and increasing interest rates suggest that the stock market could stay volatile, impacting investors’ returns. Amid volatility, it is prudent to diversify and lower risk through ETFs (Exchange Traded Funds). Among ETFs, investors could consider investing in the SPDR S&P 500 ETF Trust (SPY).

Here’s Why to Bet on SPDR S&P 500 ETF Trust ETF

The SPDR S&P 500 ETF Trust ETF is one of the most popular ETFs that aims to provide investment returns similar to the S&P 500 Index (SPX). As the SPY tracks the S&P 500 Index, which comprises 500 large-cap U.S. stocks, the ETF is well diversified, reducing the overall risk. 

Introduced in 1993, SPY has given negative returns in only six (including 2022) out of 29 years. Another key highlight is its low expense ratio (the fund’s total annual operating expense ratio) of 0.09% compared to the category average of 0.36%. 

With the help of the TipRanks’ Stock Comparison tool, here is a summary of the top 10 holdings of SPY as of November 1. 

TipRanks’ data shows that all these stocks have a Buy analyst consensus rating (Strong & Moderate Buy). Further, based on our data-driven stock score, six of these 10 stocks have an Outperform Smart Score of at least eight on 10. Meanwhile, Exxon Mobil (NYSE:XOM) and Johnson & Johnson (NYSE:JNJ) stock sport a “Perfect 10” Smart Score. Note: Shares with a “Perfect 10” Smart Score have historically outperformed the benchmark index.

Bottom Line

With the IT (information technology) sector (most tech stocks have witnessed a selloff in 2022) holding the maximum weight in the ETF (26.18%), the SPY has underperformed so far this year. This has also weighed on its three-year average return, which stands at around 10%. 

Nevertheless, the SPDR S&P 500 ETF Trust ETF is a smart investment to ride out volatility amid economic uncertainty. The SPY is highly diversified, has a low expense ratio, and has a forward price-to-earnings multiple of 16.92, which doesn’t look expensive.

Disclosure 



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