In my view, the iShares S&P 500 ETF (ASX: IVV) is one of the most effective exchange-traded funds (ETFs) on the ASX.
The fund allows investors to invest in 500 businesses listed in the US. It's not just focused on one stock exchange, with businesses from both the New York Stock Exchange and the NASDAQ.
The US share market has been volatile since the election of the new US President, Donald Trump. In the last few weeks, we've seen a bit of a drop. Since the end of January 2025, the IVV ETF unit price has fallen 3%. That's not a huge decline, but considering the market generally rises over time as company earnings grow, any dip in the market could be an opportunity.
With that in mind, let's look at the positives and negatives of investing in it right now.
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Positives
The first obvious positive is that the IVV ETF unit price is lower, meaning it's better value than it was a few weeks ago for the same businesses.
This fund gives investors access to some of the best businesses in the world – ones with excellent brand power, strong economic moats, brilliant balance sheets and compelling earnings outlooks.
I'm thinking about names like Apple, Nvidia, Microsoft, Amazon.com, Meta Platforms, Alphabet, Berkshire Hathaway, Visa, Mastercard, Costco and Netflix. The IVV ETF gives investors significant exposure to these large US businesses, which I'd back to deliver returns stronger than the S&P/ASX 200 Index (ASX: XJO) because of their impressive earnings growth.
The fund has delivered excellent results over the long term, with an average return per year of 16% in the decade to 31 January 2025. It helps that the IVV ETF only has an annual management fee of 0.04%.
The final thing I'll point out is that the new US administration seems determined to help the giant US companies in various ways, which may help their earnings in the next few years.
Negatives of the IVV ETF
This ASX ETF has seen its price/earnings (P/E) ratio rise, which to some investors suggests it is just getting more expensive compared to the underlying earnings.
According to the fund provider, its P/E ratio was 29.3 at the end of January 2025. Investors are clearly pricing in a lot of future success, which is a risk in itself – a reduction to a P/E ratio of 25 (which would still be relatively high) would be a 15% fall.
It's also a big bet on the US. While a substantial chunk of the earnings come from non-US sources, the headquarters of many of these businesses is in the United States. The US has been a great place to make money, but investors may benefit by having diversification to other international markets.
Finally, the Australian dollar is close to its lowest point against the US dollar, which means our money can't buy as much of these US companies as it did before the US election.
Overall, I think it can still be a good long-term buy at this price, but it's not as appealing as it was six months ago.
