Is iShares S&P 500 ETF (ASX: IVV) the best long-term investment for Aussie investors? There are certainly lots of positives.
Who provides iShares S&P 500 ETF?
Blackrock is the provider of the iShares group of exchange-traded funds (ETFs). It's a US asset manager which manages billions of dollars of capital. It provides some of the cheapest ETFs available to Aussie investors and global investors around the world.
About iShares S&P 500 ETF
This particular ETF gives investors exposure to the S&P 500, which is 500 of the biggest and most profitable businesses listed in the US.
The S&P 500 is an index that has been around for decades. So there is plenty of history that investors can look through and know there is ample liquidity for making investments.
Costs
One of the biggest things for ETF investors to look at is the annual cost of the investment. ETFs are just tracking the changes and returns of the index, so the lower the costs the better. When costs are lower it increases the net returns for investors, which is exactly what investors should want.
iShares S&P 500 ETF has an annual management fee cost of just 0.04% per annum. That's one of the lowest ETF fees for Australian investors. Almost all of the gross returns become net returns in an investor's portfolio.
Holdings
An ETF's performance is essentially down to the performance of its underlying holdings.
I've already mentioned that iShares S&P 500 ETF owns 500 businesses in its portfolio. The quality of that portfolio is apparent when you look at its largest holdings.
Based on the latest disclosure, its largest positions were as follows: Apple, Microsoft, Amazon, Alphabet, Facebook, Berkshire Hathaway, Johnson & Johnson, Visa, Proctor & Gamble, Ndivia, Home Depot, Mastercard, UnitedHealth, JPMorgan Chase, Verizon, Paypal, Walt Disney, Adobe and Netflix.
Many of the above businesses are leaders in their industries. They have very large economic 'moats' and it would take an incredible performance from a challenger to displace them.
But don't think of these businesses as American businesses. Most of them are global businesses. PayPal enables payments and transfers across the world. Facebook and Alphabet/Google advertise in almost every country. Johnson & Johnson products are used all over the world, as are Proctor & Gamble products. The world's global payment network is run by Visa and Mastercard. And so on.
iShares S&P 500 ETF has a great listing of holdings. With 500 businesses it provides a lot of diversification. However, the biggest allocation is to tech businesses with a weighting of 28%. Normally, having that much weighting to a sector could be detrimental to the idea of diversification. But I think the weighting is a positive of the ETF – technology companies are proving to be resilient to COVID-19 impacts and they have strong long-term growth prospects.
Returns
iShares S&P 500 ETF has delivered excellent returns over the past decade – despite COVID-19. Over the last 10 years to 31 July 2020 the ETF has delivered average returns per annum of 16.4%. That's a really strong run.
Past performance is definitely not a guarantee of future performance, however it shows the types of returns that the underlying holdings can produce.
Is it a good buy today?
Over the long-term it's important to recognise that earnings and share prices tend to keep rising. However, there can be heavy volatility, like we saw earlier this year with the market crash.
I think iShares S&P 500 ETF is one of the best (and cheapest) ways to benefit from the steady march of the share market going higher over the decades.
But, with a price/earnings ratio of almost 23 it's quite highly valued. There is also an upcoming US election, so there may well be some volatility later this year. I think the ETF can be part of a regular investment plan, though I wouldn't want to invest a lump sum this year until closer to the US election, or perhaps until just after it.
