The iShares S&P 500 ETF (ASX: IVV) has been one of the best-performing exchange-traded funds (ETFs) over the past decade, creating significant wealth for long-term investors.
As the name suggests, this fund gives investors exposure to the S&P 500 Index (SP: .INX), a group of 500 of the largest and most profitable businesses in the United States.
If an investor's aim is to own some of the world's best businesses, this is a good way to achieve it.
The last decade has been an incredible time to be exposed to the US share market, enough for someone to grow their investment by more than four times.
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How good have the ASX ETF's returns been?
According to Blackrock Inc., the IVV ETF has delivered an average annual return of 16.2% in the last decade. Compare that to the S&P/ASX 200 Index (ASX: XJO), which has delivered an average annual return of 8.3% over the past decade.
The IVV ETF would have turned a $5,000 investment into $22,400 over the past 10 years and a $20,000 investment into almost $90,000. With a $100,000 investment, the IVV ETF value would have grown to just a smidge under $450,000.
There are two key reasons for the ASX ETF's excellent returns for investors, in my view.
Low fees
Firstly, investors are losing very little of the return on fees.
Fund providers incur costs to provide us with investment products. The lower the costs, the better. However, if the costs are noticeably high, they can significantly affect our wealth-building efforts.
For example, if the IVV ETF's costs were 1% higher, reducing its net returns to an average of 15.2% per annum over the last decade, a $100,000 investment would be worth around $412,000 – that's a whole $38,000 less than the original figure.
Some fund managers are worth their fees – they can deliver outperformance after fees, so the net return is the most important return to focus on.
The other, more important, factor for the ASX ETF's return has been the performance of its underlying holdings.
High-quality portfolio
The IVV ETF is full of world leaders from various sectors, such as Microsoft, Alphabet, Apple, Meta Platforms, Nvidia, Costco, Netflix, McDonald's, Amazon and many more.
The US tech giants have delivered great returns over the past decade as they benefited from growth trends like cloud computing, global digitalisation, AI, online video, increased smartphone usage, and more. These different elements have led to this collective group of companies delivering earnings growth.
Additionally, the businesses within the iShares S&P 500 ETF typically have a high return on equity (ROE), low levels of debt and a compelling earnings outlook.
Past performance with this ASX ETF is not a reliable indicator of future performance, but with the quality and ongoing profit growth of the portfolio's large US businesses, they could help it continue to outperform the ASX 200 over the long term.
