The iShares S&P 500 ETF (ASX: IVV) provides exposure to 500 of the biggest US stocks but is it a good investment? Here are some pros and cons for IVV.
The IVV ETF is $5.012 billion in size and tracks the S&P 500 Index. The top sectors that make up the index are technology (27.88%), healthcare (13.35%), consumer discretionary (11.91%), communication (11.44%) and financials (11.13%).
For Aussie investors one of the best ways to get diversification is to look beyond the ASX and explore international exchanges. The US is often the first place to look for international diversification.
IVV provides instant diversification to the 500 of the biggest companies in the US and its top holdings are some of the biggest companies in the world. Some of its top holdings are Apple, Microsoft, Amazon, Facebook, and Berkshire Hathaway.
The annual fee for IVV is a very low 0.04%. To put that in perspective that means if $5,000 was invested for one year it would attract a fee of just $2.
I think that is a great value fee and is one of the lowest for an ETF.
We have no way of knowing what the future will bring for returns. However, owning a slice of the 500 biggest companies in the US will give an investor a very good chance to ride any waves of gains.
At a Berkshire Hathaway annual general meeting Warren Buffet himself said “I recommend the S&P 500 Index fund and have for a long, long time to people“.
Cons to consider
This isn’t an ETF for income seeking investors with the yield at only 1.08%. With such a low yield this is an ETF for investors looking for capital growth.
Is it too pricey?
The S&P 500 has gone through a large bull run in recent times and currently has a price to earnings ratio (P/E ratio) of 34.
Is a PE of 34 too expensive? It’s hard to say without a crystal ball, however it is high by historical standards even after accounting for how heavily weighted it is to the technology sector.
Technology sector stocks often have a higher P/E ratio than other industries because they are priced for higher long term growth expectations.
With all things considered this would be a solid choice for an investor looking for US exposure. The low fees, diversification and easy hands-off investing are big ticks for IVV.
For investors who prefer more income from their investments, this might still be worth considering for its diversification purposes.