An investment in the iShares S&P 500 ETF (ASX: IVV) in 2024 has been nothing short of highly lucrative this year.
Investors are usually accustomed to slow but steady returns from index funds like the iShares S&P 500 ETF. But this exchange-traded fund (ETF)'s return of 36.34% year to date (at the market close on Friday) has been anything but slow.
To put it in context, legendary investor Warren Buffett has managed to average an annual return of around 20% per annum at his company, Berkshire Hathaway, over the past 60 years or so. And that return has turned Buffett into one of the richest people in the world.
So, should ASX investors buy into the IVV ETF today for another stonking year in 2025? That's what we'll be diving into today.
How has the iShares S&P 500 ETF returned 36% this year?
To understand how this index fund has delivered such a stunning return in 2204, we only have to look at its major constituents.
Just as the big banks and BHP Group Ltd (ASX: BHP) hold sway over the S&P/ASX 200 Index (ASX: XJO), it's the big tech stocks that tend to drive the S&P 500. This index holds 500 different companies on paper. But in practice, the 'magnificent seven' alone make up a whopping 33.54% of the index's weighted portfolio.
These magnificent seven stocks — Apple, NVIDIA, Microsoft, Amazon, Alphabet, Meta Platforms and Tesla — have had a breakout year.
All seven have hit new record highs in 2024, and all are up by at least 20%. Nvidia stands out with its near-200% rise.
With gains like these minted by IVV's top holdings, it's no wonder this ASX ETF had such a massive year in 2024.
But that's all well and good for existing investors. But what about 2025?
Will IVV give ASX investors another 36% in 2025?
Well, for the iSahres S&P 500 ETF to continue delivering its 2024 gains in 2025, a lot would have to go right. We would need to see more 20%-plus gains for the magnificent seven, at minimum.
Bear in mind that this would push some of these companies' market capitalisation to more than US$4 trillion. We would also likely need a broader rising tide lifting up the entire stock market.
This is not an unlikely scenario, though, at least according to one expert. Yesterday, my Fool colleague Bronwyn covered the views of Michael Hunstad, chief investment officer at Northern Trust.
Hunstad is reportedly still "very bullish on US equities for a variety of reasons". These include expectations of continued earnings growth for the US markets, healthy economic growth projections overall, and falling inflation.
He stated this as well:
Today, the biggest technology companies have among the highest earnings growth, profit margins, capital expenditures and free cash flow generation in the S&P 500 index.
While they also have higher price-to-earnings ratios, we feel these multiples are justified by strong fundamentals.
If this expert is to be believed, another positive year is in store for the ASX's IVV investors. Let's see if he's on the money this time next year.
