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SPY Stock has momentum, but may be too tech-heavy

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It is widely known as the world’s largest exchange-traded fund and made history as the first ETF listed in the United States in 1993. Of course, I’m referring to the SPDR S&P 500 ETF Trust (NYSEARC:TO SPY). Every day, legions of traders use SPY stocks to gain exposure to the S&P500 index.

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Instead of entrusting their capital to a professional fund manager, some people simply choose to put it in an index fund like this one. That’s not a bad idea, as that’s 500 large-cap and large-cap stocks covering about 24 industry groups.

Of course, SPY stocks could be considered a “set it and forget it” type of investment. However, sophisticated investors should always follow the “know what you own” credo, even if they own a proven index fund.

As we’ll see in a moment, the S&P 500 can be considered cheap or expensive, depending on one’s perspective. With that in mind, let’s dive into a mega-fund with huge trading volumes and a pedigree that few assets can match.

A Closer Look at SPY Stocks

Over the long term, the SPDR S&P 500 ETF Trust has done an outstanding job of following the price path of the underlying index.

Even on a day-to-day basis, as I check the percentage gains and losses on my computer screen, I can barely detect the differences between SPY stock and the S&P 500.

And for cost-conscious investors, the fund has an ultra-low gross expense ratio of 0.0945%. In other words, the fund managers charge an annual fee, but it’s barely noticeable.

Just think of the effort and time it would take to select 500 stocks on your own. For such a small fee, why not let the experts pick the titles for you?

Additionally, SPY stock has performed extremely well over the long term. In fact, the ETF’s price has gone from $226 five years ago to $437 today.

May be too expensive, or not

Given the SPDR S&P 500 ETF Trust’s astonishing five-year performance (despite a global pandemic, mind you), some people might argue it’s too expensive to buy now.

On the other hand, SPY stock recently pulled back from its 52-week high of $479.98. It’s not a 10% correction, but at least it’s a drop.

And when it comes to the S&P 500, the trend is definitely your friend. Opponents trying to bet against the index’s upward momentum are just asking for trouble.

Additionally, as of January 14, the S&P 500 price-earnings ratio was 28.55, according to The Wall Street Journal. A year earlier it was 40.98, so maybe there’s actually a good deal to be had here.

A tech-tonic shift

I’m old enough to remember a time when the S&P 500 was dominated by old industrial giants. Today, the index reflects society’s move into the digital age.

Before you consider buying SPY stock, I strongly encourage you to apply the “know what you own” principle. This would include visiting the SPDR S&P 500 ETF Trust webpage and clicking on the “holdings” tab.

This will give you an idea of ​​what is actually in the collection. Immediately, you will be struck by the high weighting of the technology sector.

We are talking about famous tech names like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Metaplatforms (NASDAQ:Facebook) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).

Obviously, if you own SPY stocks, you better believe that the tech sector of the economy will continue to grow. Otherwise, you may be overexposed to an industry you don’t trust.

The Basics of SPY Stocks

With ultra-low fees and a track record of strong performance, SPY stocks are hard to beat.

Just be sure to dive into the details of the fund before taking a position. After all, knowledge is power in financial markets.

Additionally, you’ll want to do a gut check to determine if you’re a true believer in the tech industry. If so, the SPDR S&P 500 ETF Trust could be one of your most reliable long-term holdings.

As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

SPY Stock has momentum, but may be too tech-heavy

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