S&P 500 Crosses 3,100: Profit From These ETFs

The S&P 500 has been hitting record highs lately and crossed the 3,100 level for the first time in intraday trading on Nov 12 but was unable to maintain the threshold at the close. Easing U.S.-China trade worries and stronger-than-expected earnings were the biggest catalysts for the latest rally.

The United States is expected to sign a phase one trade deal with China later this month. On the Q3 earnings front, of the 447 S&P members that reported results, 72.5% companies beat EPS estimates and 57.9% beat on revenues. The proportion of these companies beating EPS and revenue estimates is in the historical range.

The rally was further fueled by rate cuts by the Federal Reserve that have made borrowings cheaper, providing a boost to both investment in new projects and repayment of higher-rate debt. The Fed slashed interest rates once again by 25 basis points last month, representing the third rate cut for the year.

Against such a bullish backdrop, investors seeking to participate in the S&P 500 rally could consider ETFs that replicate the index. While these funds look similar in terms of the holdings’ break up, with Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) taking the top two spots, there are a few key differences between them that are highlighted below.

SPDR S&P 500 ETF Trust (SPY - Free Report)

Launched in January 1993, SPY is the ultra-popular and oldest U.S. equity ETF with AUM of $280.6 billion. It is the most actively traded fund with average daily volume of around 68 million shares and 0.09% in expense ratio. The fund is structured as a Unit Investment Trust (UIT) with State Street serving as the trustee. It is therefore not allowed to reinvest dividends paid out by underlying holdings but must hold them in cash until they are scheduled to be distributed to SPY shareholders. Additionally, SPY does not lend out securities from its portfolio to earn extra money. With this drawback, SPY is leading the ETF redemptions list this year with nearly $16.2 billion in outflows but has gained 25.4% so far. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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