Spiders and Diamonds: Exchange-
Traded Index Securities
• Index funds are among the financial industry's great
success stories of the 1990s.
• In recent years, AMEX) and its partner, Nasdaq, have
moved to claim a piece of the index business, by
introducing two new securities that have become popular
with individual investors — Spiders and Diamonds.
• The name Spiders (symbol: SPY) comes from Standard &
Poor's Depositary Receipts. Spiders track the price
performance and dividend yield of the S&P 500® Index by
providing a stake in the stocks that make up that index. In
the same fashion, Diamonds (symbol: DIA) track the Dow
Jones Industrial Average and its 30 blue-chip stocks.
• Each Spider is valued at one-tenth of the underlying S&P
500. For example, if the S&P is trading at about 1,500,
Spiders trade around 150; a 10-point move in the S&P will
mean about a 1-point move in Spiders.
• Each Diamond is valued at one-hundredth of the Dow. If
the Dow is near 11,000, Diamonds trade around 110; a
100-point move in the Dow will move Diamonds about 1
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• Low-cost. Because the underlying portfolios are not
actively managed, the expense ratios of Spiders and
Diamonds are comparable to those of index funds.
• Provide broad exposure. Spiders, for instance, allow
investors to buy an interest in 500 of the leading
companies in the United States with one order.
• They are reliable. The tracking error between Spiders
and Diamonds and their underlying indices is quite small
because they try to match their benchmarks, not beat
them. Therefore, there is little risk of manager
underperformance. Furthermore, unlike closed-end funds,
there is little or no premium or discount in these funds.
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Advantages vs. No Load Mutual Funds
• Can be sold short. Because they trade on exchanges
like stocks, Spiders and Diamonds can be sold short — a
practice in which shares are sold in anticipation of buying
them back at a lower price and profiting from the decline.
They can even be sold short as they are falling in price,
something that can't be done with individual stocks.
• Can Be Traded Intraday. Another advantage of Spiders
and Diamonds is that you can buy and sell them during
the trading day. This isn't the case with most mutual
funds, which can only be traded at the day's closing net
asset value (NAV). But a Spider or Diamond investor may
be able to exploit volatility during the trading session.
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Disadvantages vs. Noload Fund
• No Transaction Fees. Many no-load index funds assess
no transaction fees, but Spiders and Diamonds entail a
normal brokerage commission to buy — and to sell.
• Slippage. Slippage is related to the bid-ask spread. Any
stock price you see as a buyer is different than what a
seller sees. This is called the bid-ask spread. Slippage
describes the cost of bid-ask gap over time to the public
• No Reinvestment Option. Owners of these securities
receive quarterly cash dividends, which represent the
accumulated dividends of the underlying stocks.
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• In addition to the securities that track the S&P 500 and the Dow Jones Industrial
Average, there are other Spider-related instruments trading on AMEX.
• Mid-Cap Spiders (symbol: MDY). These are similar to Spiders, but they're based
on the S&P MidCap 400 Index. The S&P 400 is composed of stocks with a
median market capitalization of about $3 billion, compared to the S&P 500's $65
billion median market cap (as of June 30, 1999).
• Select Sector Spiders (various symbols). These slice and dice the S&P 500 into
nine separately traded instruments, based on broad subsectors, including: Basic
Industries, Consumer Services, Consumer Staples, Cyclicals/Transportation,
Energy, Financial, Industrial, Technology and Utilities. Because these securities
are young, however, they have not yet caught on with individual investors and
their liquidity can remain spotty, making them an uncertain investment option.
• These index-based instruments are another arrow in the small investor's quiver.
Wherever index funds may be appropriate in an investor's planning, Spiders and
Diamonds deserve a closer look.
• For more on Spiders and Diamonds, see AMEX/Nasdaq's Index-Based
Investments. Spiders and Diamonds, Ron D'Vari 6