What is iShares S&P 500 ETF?
As the name suggests, the ETF is aims to match the returns of the S&P 500 index. Next question: what’s the S&P 500? The S&P stands for Standard & Poors, a global rating agency. The 500 signifies that it’s tracking 500 large cap American listed shares.
Why it’s a great ETF
I think iShares S&P 500 ETF is a wonderful ETF for three important reasons:
Very low fees
When you look the BestETF’s complete list of ETFs, you’ll see that the iShares S&P 500 ETF has one of the lowest annual management fees around at just 0.04% per year. There are only a few ETFs that look as good as that to ASX investors.
With ETFs that just track a benchmark, you should be looking for the cheapest option that you can find. An annual fee of just 0.04% is very low. It’s great considering all the other benefits you get from an S&P 500 fund.
When you look at the industry and geographical spread of earnings of the S&P 500, you’ll be pretty pleased.
IT makes up around a quarter of the ETF’s allocation. That’s a good thing because it’s technology that is creating a lot of the growth in the world right now. Plus, technology shares can grow at a faster pace because the service can be digitally (and infinitely) distributed.
Health care makes up around 15% of the iShares S&P 500 ETF. That should provide fairly defensive earnings. Financials only make up around 10.5% of the index and resources is an even smaller allocation. Compared to the ASX, it’s a lot less cyclical with more growth attributes.
The biggest allocations are great businesses
An ETF’s returns is decided by the returns of its underlying holdings. If it biggest positions do poorly then the ETF itself will do badly. If the big positions are good then that helps the ETF perform well.
The iShares S&P 500 ETF’s biggest positions are businesses like Microsoft, Alphabet, Amazon, Facebook, Apple, Netflix and so on. These are all businesses with attractive long term prospects. Digital office tools allowing for working at home, online advertising, TV streaming, online shopping and so on. These are all areas seeing growth.
Remember – these businesses are headquartered in the US, but many of them earn their profit from across the whole world. Many of them are the best of the best in their categories and are almost impossible to knock off. Other holdings within the ETF are also dominant players like Visa & Mastercard, McDonalds and so on.