Sector "Spiders": There are now nine sector spiders trading on the AMEX. Do you plan to trade them in your managed accounts? Spider is a cute name for SPDR, which is the abbreviation for Standard and Poors Depositary Receipt. These are essentially index funds that trade like stocks on the American Stock Exchange (AMEX), and I won’t go into the details. A spider for the entire S&P 500 index has been trading for several years, and it has proved to be quite popular. On most days it is the AMEX volume leader. In December, nine sector SPDRs were introduced. The 500 stocks in the index were divided into nine broad categories, and there is a spider for each of them. Spiders have some advantages over mutual funds. They trade continuously while the market is open and they can be sold short. However, the trading incurs commissions and the bid-ask spread, and during the market day they tend to track futures more closely than the underlying index or sub-index.
For the time being I am not planning to trade them in managed (or personal) accounts. I don’t think nine are enough, particularly when there are 38 Select funds and 14 Rydex sector funds. At FIAG (Fidelity Investment Advisor Group, which handles my client accounts), the commissions are low, but not in the deep-discount category, so too frequent trading can be costly; more so if the bid-ask spreads are not very narrow. The ability to trade during the day can easily be a two-edged sword, and I don’t see a way to apply my research methods to this area. Going short, while attractive conceptually, must be done quite precisely to avoid losing large amounts quickly in today’s volatile and generally bullish markets. There also are options on these spiders that could be used to hedge or protect positions in sector mutual funds, which is a far from simple topic that may be worth investigating.