The iShares S&P 500 ETF (ASX: IVV) is one of the most popular internationally-focused ETFs on the ASX. Here’s what you need to know about this leading ETF.
What is an exchange-traded fund (ETF)?
If you don’t know what an ETF is, Rask Education’s free beginner ETF course is a great place to kick-start your learning.
An ETF basically lets you invest in a whole bunch of different businesses within a single investment. It’s very handy if you want to get good diversification, but you don’t want to buy 50, or 100 or 1,000 individual businesses yourself. In fact, I’d say buying 1,000 different companies yourself would be a very poor choice because of all the brokerage costs alone.
Unpacking the iShares S&P 500 ETF
This particular ETF is about giving investors exposure to the S&P 500. The S&P 500 is a stock market index that’s designed to measure the performance of large capitalisation US shares.
It’s one of the biggest ETFs on the ASX with net assets of $3.67 billion (at the time of writing).
When people talk about the US share market, the S&P 500 is one of the main measures to track the performance of the overall US stock market.
Think about what the biggest companies in America probably are – it makes sense that this ETF has around 27.5% invested in IT businesses. There are four other sectors with a weighting of more than 10%: health care, consumer discretionary, communication and financials.
Whilst industrials, consumer staples, utilities, materials and energy all have an allocation of less than 10%, they are represented within the S&P 500 as well.
Which companies are in IVV’s top holdings?
The biggest holdings inside the IVV ETF are very recognisable. As it stands, the top 10 holdings (in order) are Apple, Microsoft, Amazon, Facebook, Tesla, Alphabet (Google), Berkshire Hathaway, Johnson & Johnson and JPMorgan Chase.
There are plenty of other global names in the portfolio as well like Visa, Nvidia, Proctor & Gamble, Walt Disney, PayPal, Mastercard, Netflix, Intel, Adobe, Salesforce, PepsiCo and Coca Cola.
Fees and performance
IVV is one of the cheapest ETFs that Aussies can buy on the ASX – it has as an annual management fee of just 0.04% per year.
The low fees have helped IVV’s net returns, but the net returns have been helped most by the strong performance by the large companies in the US over the last decade.
Blackrock/iShares, the ETF provider, states that the ETF had made average returns per year of 17% over the 10 years to 31 December 2020.
Is IVV a good investment to buy now?
Don’t think of the iShares S&P 500 ETF as an American ETF. Whilst those businesses are listed in the US, many of them make earnings from across the world. You use Google right? Microsoft Outlook, Word and Excel? An Apple phone? Are you a Netflix subscriber?
This ETF provides global earnings diversification with many of the world’s strongest businesses. Whilst foreign currency won’t have a major long term impact on returns, the strong Aussie dollar makes it a bit cheaper to buy US shares at the moment.
There are other ASX ETFs that could be worth considering which have good growth potential and also could be worth taking advantage of the strong Aussie dollar like VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT).