A smart beta exchange traded fund, the State Street SPDR S&P Dividend ETF (SDY) debuted on 11/08/2005, and offers broad exposure to the Style Box - Large Cap Value category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
Managed by State Street Investment Management, SDY has amassed assets over $22.1 billion, making it one of the largest ETFs in the Style Box - Large Cap Value. Before fees and expenses, SDY seeks to match the performance of the S&P High Yield Dividend Aristocrats Index.
The S&P High Yield Dividend Aristocrats Index measures the performance of the highest dividend yielding S&P Composite 1500 Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years.
Cost & Other Expenses
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
With on par with most peer products in the space, this ETF has annual operating expenses of 0.35%.
SDY's 12-month trailing dividend yield is 2.36%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
SDY's heaviest allocation is in the Industrials sector, which is about 19.3% of the portfolio. Its Consumer Staples and Utilities round out the top three.
Taking into account individual holdings, Realty Income Corp (O) accounts for about 2.18% of the fund's total assets, followed by Verizon Communications Inc (VZ) and Kenvue Inc (KVUE).
Its top 10 holdings account for approximately 17.24% of SDY's total assets under management.
Performance and Risk
The ETF has added about 14.74% so far this year and it's up approximately 16.55% in the last one year (as of 08/10/2026). In the past 52-week period, it has traded between $135.96 and $158.70
The ETF has a beta of 0.69 and standard deviation of 11.99% for the trailing three-year period, making it a medium risk choice in the space. With about 158 holdings, it effectively diversifies company-specific risk .
Alternatives
State Street SPDR S&P Dividend ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.
Schwab U.S. Dividend Equity ETF (SCHD) tracks Dow Jones U.S. Dividend 100 Index and the Vanguard Morningstar Value ETF (VTV) tracks CRSP U.S. Large Cap Value Index. Schwab U.S. Dividend Equity ETF has $105.96 billion in assets, Vanguard Morningstar Value ETF has $191.54 billion. SCHD has an expense ratio of 0.06% and VTV changes 0.03%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Value
Bottom Line
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State Street SPDR S&P Dividend ETF (SDY): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).