State Street SPDR S&P 500 ETF Trust (SPY)

SPY is the oldest and most liquid S&P 500 fund — a trading instrument more than a buy-and-hold one.

The fund tracks the S&P 500 — roughly five hundred of the largest listed US companies, weighted by free-float market capitalisation. An important consequence follows: the weight of the largest technology companies is high, and index behaviour is driven substantially by them rather than by the average American company.

Legally SPY is a unit investment trust, a structure older than modern exchange-traded funds. That imposes constraints: dividends are not reinvested immediately but held until distribution, producing a tiny but systematic drag relative to the index compared with newer funds holding the same securities.

In exchange SPY offers unmatched liquidity and the deepest options market, which is why it is chosen for short-term positions and hedging. For long holding periods, funds with lower fees and a modern structure cost less — with the same holdings, the difference compounds over decades.