Is it too early to say it looks like the adults have entered the room? The US markets overnight posted an increase of 1.3% at the time of writing as the Trump administration walks back further tariffs announcing cars and car parts to be exempt.
Believe it or not but I’ve not sat down to read the Art of the Deal, but it makes me wonder, was it all really necessary? Nvidia Corp (NASDAQ:NVDA) announced it would manufacture hundreds of billions of dollars worth of chips in the US yesterday. Manufacturing is returning to the US, but could we have arrived at this any other way?
- S&P 500: +1.3%
- Nasdaq + 1.3%
- Aussie dollar +0.7% to $US63.32
- Iron ore +0.8% to $US97.90
Australian tech stocks rally, consumer staples now not as appealing
Yesterday the S&P/ASX 200 closed 1.34% higher. Resources, banks and tech led the way with the latter increasing 2.6%. WiseTech Global Limited (ASX:WTC) put on 3.1%.
Consumer staples, which held their own in the dark days of last week were the only sector to see decreases…what have you done for us lately Coles Group (ASX:COL) and Woolworths Limited (ASX:WOW)! Telstra Group (ASX:TLS) also declined slightly as investors cash scampered for growthier grounds. Coles, Woolworths and Telstra responded to the “you up?” text of investors just a week ago only to be left on read now.
ETF in focus: iShares S&P 500 ETF
My three year old has just interrupted my writing, so I’ll tell you about an ETF he owns via his Rask Invest Luna portfolio. The iShares S&P 500 (ASX:IVV) tracks the 500 largest listed companies in the US. This means it holds, in order of size, companies that sit on both the New York Stock Exchange and the Nasdaq. You can get this selection of companies for just 0.04%pa management fee.
IVV is held across all Rask Invest portfolios and not just Luna. But given he’s now clipping pegs to me whilst I write this I’ll explain why I selected it for Luna. When investing for children you have an incredibly long time horizon in front of you but you also have tax consequences to think about.
The question was, what could we hold for 30+ years in a portfolio and not have to trade in and out of creating CGT events? When an ETF charges just 0.04%pa it’s hard to imagine another ETF issuer coming along and saying, “we’ll do it for 0.02%, everyone switch across”. Additionally, I don’t want a lot of income. You’ll see US stocks reinvest profits at a much higher rate than Australian stocks or buy back shares instead of paying dividends. This decreases the dividend yield but increases growth.
Finally, we wanted an ETF that would naturally capture tomorrows winners. You could look at the S&P 500 as the ultimate thematic ETF. It moves with the times with its constituents reflecting the shifts in society. In 1957 Standard Oil was the largest company with a market cap of $11 billion, in 1976 it was International Business Machines at $42 billion and in 2001 it was General Electric $398 billion.
The S&P 500 captured the growth of those businesses and as new businesses rose their growth was captured and these businesses shrank having less and less of an impact on the performance.
I’ll let long time Rask podcast listener, first time caller, Warren B from Omaha wrap it up, “My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions or individuals—who employ high-fee managers.”
A quick note on Warren’s suggestion, in Australia, if you’re looking for S&P 500 tracking ETFs, the iShares one is the only one.
How to keep in touch
For the early birds reading this, at midday today you can see me interviewing Steve Johnson from Forager Funds Management live on Youtube. You will need this link to access.
If you would like to get in touch with me you can via the chat in the bottom right corner, jumping across to Rask Invest or saying hello on the Rask Community (BTW this has been excellent during the volatility).
Enjoy your Tuesday.
