Is the iShares S&P 500 ETF (ASX: IVV) the best long-term investment that investors can pick on the ASX for growth?
It's an interesting idea. Just because something is an exchange-traded fund (ETF) doesn't mean it can't generate a lot of growth.
What is the iShares S&P 500 ETF?
It's an ETF based on the S&P 500, which is 500 of the biggest businesses listed in the US. The 'iShares' part of the name means it's provided by Blackrock, one of the biggest and best ETF providers in the world.
There are certain rules to get into the S&P 500, so this ETF is a generally higher-quality ETF than most other index-based ETFs.
What are the businesses in the S&P 500?
If you can think of a global business that's listed in the US, it's probably being held within this ETF.
The biggest holdings are ones like Microsoft, Alphabet (Google), Apple, Amazon, Facebook, Visa, Mastercard and Berkshire Hathaway. A little further down the list are shares like Intel, Disney, Home Depot, Coca Cola, Pepsico, Boeing, Walmart, McDonalds, Netflix, Nike, Paypal and Costco.
Many of the businesses that I just named are leaders in their industries and generate earnings from across the world – providing excellent diversification.
In terms of diversification, I really like the industry split. IT is allocated 23.7% of the portfolio, 14% is allocated to healthcare, 12.6% is allocated to financials, 10.6% is allocated to communication, 9.6% is allocated to consumer discretionary, 9% is allocated industrials and so on.
It's not like the ASX 200 (ASX: XJO) where there is a large focus on low-growth industries like financials and resources.
What's the management fee?
One of the main things to think about when looking at ETFs is the management fee. If it's going to try to match the returns of the index you want the fees as low as possible.
The iShares S&P 500 ETF has an annual management fee of just 0.04%, leaving nearly all of the returns in the hands of investors.
Is it the best long-term investment?
Warren Buffett himself wants his wife to invest most of what he leaves to her in a S&P 500 ETF. There are going to be fund-managed funds and individual shares that outperform the S&P 500 over the long-term from today's, but it's hard to go wrong with this ETF.
It's jam-packed full of great businesses with global growth aspirations. The biggest businesses have lots more growth in them thanks to cloud computing, online video and so on.
I think it's a great option for most people. The only thing is that it has a low trailing yield of 1.6% and no franking credits, so not great for income, but it's possible for investors just to sell a portion of their holdings when they need money.
