ETF 101: Spyders, Qubes, Diamonds

04/11/2003 12:00 am EST


Richard Band

Editor, Profitable Investing

Exchange–traded index funds, such as the Standard & Poor’s 500 Spyders (SPY ASE), are ideal for this purpose. Among the Spyders advantages are:


1)      They give you instant exposure to 500 different US stocks, including all the well-known blue chips.  Broad diversification muffles the impact of a blowup at any one company.

2)      You can buy and sell Spyders anytime during the trading day, through any broker.

3)      Spyders are highly liquid. The difference between buy and sell prices for Spyders is normally only a penny or two (on an $80 share).

4)      You can sell them short with no rule against selling on downticks to hedge against a market decline.

5)      Pricing is simple: Spyders are worth one-tenth the S&P 500  index (plus a small amount for accrued dividends).

6)      Annual expenses run to just $0.12 per $100 invested. Spyders pay quarterly dividends. The current yield hovers around 2% or double a money market fund.


“Overall, Spyders are one of the great financial advances of our time. Learn to use them, and you’ll get to the head of the financial class.  After Spyders, the most active exchange-traded funds by dollar volume are the NASDAQ 100 Qubes (QQQ ASE) and the Dow Jones Diamonds (DIA ASE). As the names apply, the Qubes make you a fractional owner of the 100 largest non-financial stocks on the NASDAQ, while the Diamonds take in the 30 stocks in the Dow Jones industrial average.  Why choose these over Spyders?  If you are looking for an aggressive play, the NASDAQ 100 index usually fluctuates more – on both the upside and the downside – than the S&P 500. The Dow Diamonds, on the other hand, tend to be less volatile, both up and down, than the S&P. The Dow includes only three technology stocks and all three (IBM, Intel, and Microsoft) rank with the steadiest names in the industry. For investors with a timer horizon of a year or more, I advise buying the Qubes at $27.20 or better and the DIA at $82.80 or less.”

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