iShares S&P 500 (ASX: IVV) is one of the biggest exchange-traded funds (ETFs) on the ASX. There are a few different reasons to consider the ETF for the long-term.
Three different elements make up the name of this investment. The 'iShares' part of the name is from the provider of ETF, which is Blackrock. The S&P is the provider of the index that this investment tracks – the S&P 500. The 500 part of the name is how many different businesses are in the portfolio.
Here are three of the factors to consider this potential investment:
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Diversification
One of the advantages of ETFs is that it allows investors to buy into a large group of businesses with a single investment. It seems obvious to say, but the S&P/ASX 200 Index (ASX: XJO) has 200 businesses within it, which is quite a lot.
But iShares S&P 500 has more than double that at 500.
The biggest positions are some of the strongest companies in the world, mostly from the tech sector. I am referring to names like: Microsoft, Apple, Amazon.com, Alphabet, Meta Platforms, Tesla, Nvidia, Berkshire Hathaway and JPMorgan Chase.
When looking at the weightings of the ETF's portfolio, there are five sectors with a double digit weighting, though there is one which receives a much larger allocation: IT (28.5%), consumer discretionary (12.9%), healthcare (12.7%), financials (11.1%) and communication (10.7%).
Geographically, all of the S&P 500 are listed in the US. However, the underlying earnings comes from across the world.
Fees
Lower fees have the effect of assisting long-term shareholder returns. It means that more of the value stays in the hands of the investor.
The iShares S&P 500 ETF has one of the lowest management fees on the ASX, with an annual management fee of just 0.04%. That means that almost all of the returns stay in the hands of investors.
Fees can't really go much lower with this ETF. However, there are plenty of fund managers that charge a 1% management fee, or even more.
Underlying performance
An ETF will track the overall performance of its portfolio. That means that the largest positions have the biggest influence on the returns and the smaller positions don't contribute much.
iShares S&P 500 ETF has performed well thanks to the strength of its large holdings like Microsoft and Apple. Over the past five years, its net return has been an average return per annum of 19%. However, past performance is not a guarantee of future results.
Is the iShares S&P 500 ETF share price good value?
Analysts usually don't make a value judgement on an entire ETF like this one.
However, after the iShares S&P 500 ETF has gained 30% over the past year, it now has a price/earnings ratio of 33.7, which is high against historical standards. But that just reflects the underlying holdings valuations. The price to book ratio is around 5x.
