iShares S&P 500 ETF Drops 11% In Dec’ 18 Quarter

During the December 2018 quarter, the iShares S&P 500 ETF (ASX: IVV) suffered one of the worst falls since the end of the Global Financial Crisis (GFC).

For readers that aren’t aware of this exchange traded fund (ETF), IVV aims to provide a low-cost, diversified exposure to American businesses in the S&P 500 Index, which includes 500 of the biggest businesses listed in the United States. It is offered by Blackrock, a world leading provider of low cost ETFs.

Why The iShares S&P 500 ETF fell 11% in 3 months

The overall movement in an index like the S&P 500 is decided by the share price movements of the underlying holdings. Many of the S&P 500 index’s constituents like Amazon, Apple, Microsoft, Alphabet and Facebook dropped in value over the December 2018 quarter.

There were several potential catalysts which caused the market to go negative:

• the latest from US President Trump
• another hike of the US interest rate by the Federal Reserve
• the ongoing trade war, and
• the prospect of a US political stalemate after the Democrats won back control.

According to The Meticulous Investor, the average price-earnings ratio of the S&P companies is 19.8x. “The prospect of buying assets at a discount to fair value has always struck me as straight forward and obvious.”

In ETF land, despite the decline in IVV’s unit price, the main attractions of the ETF remain.

IVV continues to have a very low management fee of 0.04% per annum, one of the lowest on the ASX.

And the S&P 500’s holdings continue to be nicely diversified. For example, there are four industries where more than 10% of the index is allocated. Those four are:

• Information Technology
• Health Care
• Financials, and
• Communication

IVV’s biggest holdings are giant global businesses that could keep growing for a long time to come. Some of those holdings include: Microsoft, Apple, Amazon, Berkshire Hathaway, Johnson & Johnson, JPMorgan Chase, Alphabet and Facebook.

Despite the painful quarter investors of the iShares S&P 500 ETF have still done well over the past five years, it has returned an annualised 13.74% per year, according to Blackrock.

Based on the latest metrics, Blackrock said the price to book ratio was almost 3x and the distribution yield was 1.8%.

Overall, this seems like a high-quality index fund ETF with very low costs, strong returns and a good diversification strategy. That’s perhaps why Warren Buffett is a fan.

Long term investors could do well with a buy-and-hold approach at the current price.

[ls_content_block id=”695″ para=”paragraphs”]