On Jan. 22, 1993 an obscure financial product called the “SPDR” was introduced on the American Stock Exchange. The idea was to help investors gain easy and affordable access to the S&P 500 equity index. Twenty years and $128 billion later, the SPDR (SPY) is the world’s largest ETF and among the most actively traded global securities.
What began as a movement to track broad based benchmarks has shifted. ETFs now cover narrow markets in a wide swath of asset classes from stocks and bonds to commodities and currencies. It’s already been two decades since the evolution of ETFs, but what will their future be?
Research caught up with Kevin Quigg, global head of ETF strategy and consulting, State Street Global Advisors, to find out.
What type of impact will the American Taxpayer Relief Act 2012 (ATRA; known as fiscal cliff legislation) have on dividend investing?
Due to the continued need for income, dividend investing should be undeterred by any of the implications of the ATRA. Furthermore, since dividend and capital gains tax rates remained at parity, taxable investors should not exhibit a strong preference from a tax standpoint.
Investors concerned about broader opportunities for domestic dividend investing will be well served to consider an ETF that provides access to high dividend yielding equities that have historically been able to return capital to shareholders across all market cycles. One popular example is the SPDR S&P Dividend ETF (SDY).
Outside of the US, investors should look to companies with strong earnings growth and profitability to fund dividend growth in the future. The SPDR S&P International Dividend ETF (DWX) and SPDR S&P Emerging Markets Dividend ETF (EDIV) are two funds that offer investors an opportunity to diversify their dividend exposure.
The SPDR S&P 500 (SPY) celebrated its 20th anniversary in January. Has the success of SPY exceeded your expectations?
Our intent with all of our SPDR ETFs is to give investors access to investments that help them best meet their needs. As the largest ETF in the marketplace and one of the most liquid securities in the world, SPY has delivered on this goal while exceeding all expectations.
While the ETF marketplace has evolved over the past 20 years and opened an entire universe of new exposure to equities, fixed income, and commodities, the benefits of SPY—liquidity, transparency, and cost efficiency—still serve as the prime example of how ETFs have changed investing. We are proud to have been a part of that.
So many investors have hopped on the gold bandwagon over the past few years; do you think its diversification benefits are still intact?
Gold’s lack of correlation to most other asset classes and moderate volatility profile have helped increase its popularity among investors. Going forward, these attributes remain firmly in place.