The iShares S&P 500 ETF (ASX: IVV) is one of the largest exchange-traded funds (ETFs) in Australia. Its job is to give Aussie investors exposure to the S&P 500.
What’s the S&P 500? According to S&P Global, the S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of the US share market.
In practical terms, it means Aussies can invest in global winners listed in the US share market like Apple, Nvidia, Microsoft, Amazon, Meta Platforms (Facebook and Instagram), Tesla, Alphabet (Google and YouTube), Broadcom and Berkshire Hathaway. Those positions alone account for approximately 37% of the overall portfolio.
Have the returns been good?
Not many ETFs on the ASX have performed as well as the IVV ETF. In the last three years it has returned an average of 14.6% per year and in the past five years it achieved an average return per year of 17.2%.
Those returns are exceptional for wealth creation considering an investor doubles their money in eight years if an investment returns 10% per year.
Not only have the returns of the US companies been good, but the costs of this ETF are very low at just 0.04% per year. That’s so low that virtually all of the returns made by the fund stays in the hands of investors. Other funds may charge above 0.50% or even above 1%.
Is the IVV ETF still a good investment?
If I think about which large businesses may grow profit the most in the next five to ten years and which shares could introduce the biggest changes to their products/services to increase demand, I’d point to the names in this portfolio like Microsoft and Alphabet. Things like AI, self-driving cars and online video still have a lot more growth to go, in my opinion.
The US has been a great base for global giants like the tech players and Costco, McDonald’s, Netflix, Intuitive Surgical and others to grow from.
I don’t think these businesses are finished growing any time soon, unless something were to go terribly wrong with the US/global economy (like a GFC/COVID style event).
One of the main shorter-term risks, in my view, is the valuation of the US share market. According to Blackrock, the price/earnings ratio (p/e ratio) of the IVV ETF was 29.3x at the end of December. That’s certainly not cheap, though I think partly reflects the greater weighting the large tech companies now have in the fund – they have always had a higher P/E ratio than non-tech stocks, they’re just a bigger part of the overall index.
I’d be happy to invest $1,000 or a few thousand dollars in this fund today, but if I had $1 million to invest I wouldn’t do it all at once – I would spread it out over the next year or two by dollar cost averaging, to reduce the risk of investing at the wrong time in-case there’s a correction in the market.
I would also say there are some ASX growth shares that could be more appealing.
