Here is a article from a FastTrack Commentary that some may find helpful:
"The AMEX is now offering its own mutual funds. For those with a taste
for domestic products, try the SPDR family. For those with more exotic
cravings, try the WEBS family.
These new funds are index funds with very low expenses. Unlike closed end
funds, these funds track their underlying indices closely. They are unlikely
to sell at much of a premium or discount. Why? The sponsors for these
instruments can create and add them to the market quickly and easily. They
add shares when the fund is selling at a premium and liquidate shares
when the fund is selling at a discount. The arbitrage is profitable and a
big incentive for the sponsor.
In this commentary, I focus on the domestic SPDRs. WEBS are rather
ordinary, closed end, single country funds. They don't synchronize
particularly well with commonly available indices nor do they offer any
apparent performance advantage over more traditional closed end and open
end single country funds. Compare to FastTrack's SINGLE family.
For more information about both SPDRs and WEBs go to www.amex.com
Standard & Poor's Depositary Receipts (SPDRs)
----------------------------------------------
The first and biggest SPDR is SPY, an S&P 500 Index fund. SPY was first
offered for trading on the American Stock Exchange on January 29, 1993.
Compare SPY to VFINX and other members of the INDEXFND family.
In the first 9 months of 1997 $2.1 Billion worth of SPDRs were created,
$0.7 Billion were redeemed. In admittedly simplest terms, 1 out of every 3
SPDR shares created were redeemed. This is part of the arbitrage activity
that keeps SPDRs in line with the underlying index.
According to the current SPY prospectus, SPY's net asset value on 9/30/97
was $94.78 but the share price closed at $94.38 . . . the 40 cent
difference illustrates that the fund traded at a discount from its
underlying value. But even knowing this at the time, it would be nearly
impossible to acquire enough shares of SPY at a discount to make
significant profits.
There is also a Midcap SPDR (MDY) that tracks the S&P 400 Mid Cap Index
(SP-MC). Since these stocks have very few dividends, the unadjusted SP-MC
index and MDY follow quite closely. You might also compare Fidelity mid-Cap
Stock (FMCSX) and other members of the CAP-MID family.
New Sector SPDRs
----------------
This is where FastTrackers have been getting excited . . . perhaps
FastTrack can play these "sector Index" stocks like sector funds. To help
you understand these SPDR funds, we've used the FastTrack for Stocks
database to emulate the back history of the nine sector SPDRs.
I have spent most this past, long weekend analyzing these SPDR's and today
bought my first, XLK, the technology SPDR. To learn more about SPDRs and
see FastTrack charts with SPDR emulated history, get on the Internet at
fasttrack.net
FastTrack for the Web users can see this information from within FastTrack
for the Web.
1) FTCOM to upgrade versions to the latest upgrade (1/19/1999) with
improvements in the Internet Tab.
2) Start FT 4 the Web and click on the Internet Tab.
3) Right-click on the issue list and lad the SPDR family.
4) Click on the red ColorBar cell and turn the background black
5) Double-click on XLK in the issue list. This will place XLK in the red
ColorBar cell and pop-up the Available Links for XLK.
6) Click on "Components".
You should now see my analysis of XLK.
7) Right-click on in the center of the screen (in the browser) and choose
"Overview"
This will bring up an overview of all SPDRs and a few notes about Webs.
Aren't all SPDRs just like sector funds?
----------------------------------------
Unfortunately, this will not be the case. About half of SPDR sectors are
ill-defined. They are too diversified and lack the great rotational and
relative strength trading qualities of sector funds.
All SPDRs have something in common . . . they hold a mix of big stocks that
are highly liquid. This makes institutional profiting on the arbitrage
much easier. SPDRs were created NOT to serve investors who want to
diversify . . . they were created by institutions intent on profiting
from market inefficiencies that SPDRs themselves create.
The fact that some SPDRs are tradable is kinda a side effect . . .
Summary and Recommendations
---------------------------
Given that S&P 500 Index funds don't like a lot of market timing trades,
SPY is the perfect alternative. You can trade more than a $100,000 of
assets for a fee of $14.95 at the Fidelity brokerage or as little as $5.00
at Brown & Company . . . why hassle with a fund company?
On the other hand, only XLE, XLF, XLK, and XLU can compete with the
Fidelity Selects and other traditional sector funds. See FastTrack for the
Web commentary for a more detailed analysis.
BUT I AM NOT INTERNET READY
============================
Our support to FastTrack for DOS is not secondary. I wrote the DOS
commentary first and then adapted to FT for the Web. See the following.
SPDR Sectors divide the S&P 500 into 9 groups:
==============================================
Basic Industries (XLB) Index Symbol: IXB (56 companies)
--------------------------------------------------------
The stocks in the top holdings include
Dow Chemical Co. (DOW) 6.38% Chemicals
International Paper Co. (IP) 4.36% Paper, wood products
Alcoa (AA) 4.34% Aluminum
Barrick Gold Corp. (ABX) 2.30% Gold
Tenneco Inc. (TEN) 1.84% Auto parts and packaging
Avery Dennison Corp. (AVY) 1.66% Labels
Now what kind of a sector fund holds these kinds of companies? Well, look
at Fidelity Industrial Equipment (FSCGX). XLB is similar to FSCGX, but
neither inspires any great trading strategies.
Consumer Services (XLV) Index Symbol: IXV (47 companies
-----------------------
Time Warner Inc. (TWX) 12.36% media and entertainment
Walt Disney Co. (DIS) 9.98% Creative Content, Broadcasting, Parks
McDonalds Corp. (MCD) 8.41% Fast food
Tele Comm- TCI Group (TCOMA) 4.83% Cable
Carnival Corp. (CCL) 4.64% Cruising
MediaOne Group Inc. (UMG) 4.63% Cable, content
Viacom Inc. (VIA.B) 4.18% entertainment publishing
CBS Corp. (CBS) 3.75% Broadcasting
Comcast Corp. (CMCSK) 3.52% Cable networks
Gannett Inc. (GCI) 2.95% Newspaper, broadcasting
Cendant Corp. (CD) 2.64% Travel, realty
Columbia HCA Healthcare (COL) 2.59% HMO Health
Pretty Hard to characterize this one. They don't move together.
Consumer Staples (XLP) Index Symbol: IXR (69 companies)
-------------------------------------------------------
Merck and Company Inc. (MRK) 7.88%
Coca Cola Co. (KO) 7.38%
Pfizer Inc. (PFE) 7.29%
Bristol Myers Squibb Co. (BMY) 5.95%
Phillip Morris Companies (MO) 5.83%
Procter and Gamble Co. (PG) 5.42%
Johnson and Johnson (JNJ) 5.05%
Eli Lilly and Company (LLY) 4.38%
Schering Plough Corp. (SGP) 3.64%
Abbott Laboratories (ABT) 3.33%
American Home Products (AHP) 3.32%
Warner Lambert Co. (WLA) 2.76%
Pepsico Inc. (PEP) 2.69%
Gillete Co. (G) 2.40%
Drugs, Coke, Cigarettes, and Razor Blades!!
Cyclical/Transportation (XLY) Index Symbol: IXY (68 companies)
-----------------------
Wal-Mart Stores Inc. (WMT) 22.03%
Home Depot Inc. (HD) 11.49%
Ford Motor Company (F) 8.53%
General Motors Corp. (GM) 5.62%
Gap Inc. (GPS) 3.91% retail clothing
XLY looks a lot like Fidelity Select Cyclical (FCYCZ).
Energy (XLE) Index Symbol: IXE (31 companies)
--------------------------
Exxon Corp. (XON) 24.13%
Royal Dutch Petroleum (RD) 16.41%
Mobil Corp. (MOB) 10.91%
Chevron Corp. (CHV) 4.83%
Texaco Inc. (TX) 4.15%
Atlantic Richfield Co. (ARC) 3.72%
Enron Corp. (ENE) 3.45%
Phillips Petroleum Co. (P) 2.12%
USX Marathon Oil (MRO) 1.86%
Buy this group as a proxy for BIG oil companies. It matches up nicely to
Fidelity Select Energy (FSENX). The components also include Energy services
companies, but these are outweighted by the big energy companies.
However, this is a cohesive sector. All the components are affected by the
price of oil.
Financial (XLF) Index Symbol: IXM (71 companies)
----------------------------
American International Group Inc. (AIG) 7.63%
Citigroup Inc. ( C ) 7.19%
BankAmerica Corp. (BAC) 6.65%
Federal National Mortgage Assoc (FNM) 4.90%
Wells Fargo and Co. (WFC) 4.13%
First Union Corp. (FTU) 3.85%
Bank One Corp. (ONE) 3.82%
Chase Manhattan Corp. (CMB) 3.68%
American Express Co. (AXP) 2.95%
Not an entirely cohesive group, but they are all affected by interest rates
and international financial crisis. You can expect this XLF to show
tradable trends. The dominance of banks make this index look like Fidelity
Select Regional Banks (FSBRX).
Industrial (XLI) Index Symbol: IXI (35 companies)
----------------------------
General Electric Co. (GE) 22.80%
Tyco International (TYC) 9.40%
Minnesota Mining and Manufacturing (MMM) 5.62%
Emerson Electric Co. (EMR) 5.41%
AlliedSignal Inc. (ALD) 5.10%
Waste Management Inc. (WMI) 4.65%
Caterpillar (CAT) 3.58%
Illinois Tool Works Inc. (ITW) 3.25%
Textron (TXT) 2.96%
This fund should be affected by the long economic cycle. You can expect to
see tradable trends. You might note that the group as a whole is a BIG part
of the S&P 500 and that IXI will likely look very much like the S&P 500.
Not very tradable using relative strength.
Technology (XLK) Index Symbol: IXT (82 companies)
-------------------------------------------------
Microsoft Corp. (MSFT) 14.07%
Intel Corp. (INTC) 8.04%
International Business Machines (IBM) 7.01%
Cisco Systems Inc. (CSCO) 5.96%
Lucent Technologies Inc. (LU) 5.88%
AT and T Corp. (T) 5.53%
Not a bad group . . . looks much like the big HITECH funds like FSELX and
FSTPX funds.
Utilities (XLU) Index Symbol: IXU (41 companies)
------------------------------------------------
SBC Communications Inc. (SBC) 14.57%
Bellsouth Corp. (BLS) 13.55%
Bell Atlantic Corp. (BEL) 11.43%
GTE Corp. (GTE) 8.71%
Ameritech Corp. (AIT) 4.79%
US West Inc. (USW) 4.64%
This is a phone company fund without the exciting new companies. This is a
good defensive fund, but not an exciting growth fund. Quite similar to
Fidelity Select Utilities (FSUTX).
Best tradable returns,
Paul Charbonnet
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