In my eyes, the iShares S&P 500 ETF (ASX: IVV) is arguably the best way for Australians to invest in the US share market. It tracks the S&P 500 Index (SP: .INX), providing exposure to 500 of the biggest and most profitable businesses in the United States.
Driven by the US tech giants, the US share market has performed exceptionally well since the global financial crisis (GFC) of 2007-08.
And while past performance is not a guarantee of future performance, it's impressive how long the US stock market has been delivering for investors.
After such a strong run, and with a US government election just around the corner, it's worth asking whether now is the right time to invest in the IVV ETF.
Winners keep on winning?
High-quality businesses with compelling offerings can continue growing profits for a very long time. Just think about how long Apple, Alphabet, Microsoft, and Amazon have been boosting their underlying value.
The S&P 500 is home to many of the world's strongest businesses, not just the huge US tech giants. I'm thinking of examples like Walt Disney, Netflix, Costco, McDonald's and Intuitive Surgical.
Those businesses have very strong economic moats and high levels of customer loyalty. Global trends such as digitalisation, population growth, and increasing rates of affluence are helping these companies attract even more new customers. Their huge and growing scale allows them to earn higher margins than competitors and invest significantly in capital expenditures on endeavours such as artificial intelligence.
I think the world will become increasingly technological as the years go by, which should help with the earnings of this group of companies within the IVV ETF.
Companies are always trying to earn more money, and I think this collective group has shown an ability to direct their funds to the right places to achieve profit growth, cash flow growth, and maintain a good return on equity (ROE).
This ASX ETF has delivered an impressive average annual return of 15% over the past five years.
Pleasingly, the IVV ETF has an annual management of 0.04%, which is extremely low and means nearly all of the returns stay in the hands of investors.
Is now the right time to invest in the IVV ETF?
According to Blackrock (NYSE: BLK), the fund's price/earnings (P/E) ratio was 28.5 at the end of September 2024. That may seem high, but the fund is increasingly weighted to US tech companies that have (nearly) always had higher P/E ratios, so it's not surprising the valuation is that high.
Those stocks have also delivered significant earnings growth over that time, so a high valuation doesn't need to be worrying.
Another question is whether it's a good time to invest, considering the US election is so close. Will one candidate's victory cause volatility or declines in the coming months? Only time will tell.
Historically, different politicians being in charge of the US hasn't significantly altered the trajectory of the share market, though from an outside perspective, this one appears a bit more momentous than most others this century.
If I were regularly investing in the IVV ETF, I'd be happy to invest again today. However, if I had a large sum to invest in the fund, I wouldn't want to invest it all at once today. I'd wait to see if there was any volatility following the election in the next few weeks.
