Investors always look out for innovative investment opportunities. They want more ease and more convenience in the investment process and less risk for their investments. Investment companies try to fulfill their need by introducing new products time and again catching the fancy of investors. Spider exchange traded funds set the ball rolling for the exchange traded fund concept way back in 1993. Many years have passed since then, but ETFs are only getting more popular with many variations being made in this product to suit the requirements of different kinds of investors.
An exchange traded fund is a huge pool of investments. These investments may be in stocks comprising an index, stocks belonging to a particular sector, stocks pertaining to a certain theme and so on. Or the investments may be in a particular asset class like currency or commodities. The entire investment basket of the fund is divided into units which can be bought and sold in the market by investors just like individual stocks. It is thus a product designed to give the investor the best features of stocks as well as mutual funds.
The first exchange traded fund came into being in 1993 and it tracked the S&P 500 index. It was called Standard and Poor’s Depository Receipt and traded on the American Exchange. Its ticker symbol was SPDR and hence began to be called Spider. This ETF is a basket of S&P 500 stocks and is managed by State Street Global Advisers. Each unit contains one tenth of the S&P 500 index.
Today there are many versions of this exchange traded fund and they are all called Spider Exchange Traded Funds. In fact, there is even a Spider exchange traded fund created for the Dow Jones Industrial Average called SPDR Dow Jones Large cap ETF.
These funds can also be traded in the futures and options segment. Investors can go short, trade call and put options and so on to reduce risk.
The original Spider exchange traded fund provided the basis for all the ETFs we see today. Passively managed funds like Spiders which follow market indices are still popular today.