The iShares S&P 500 ETF (ASX: IVV) is one of the most compelling index funds in my opinion. The exchange-traded fund (ETF) tracks the S&P 500 Index (SP: .INX), an index of 500 of the biggest companies in the US, whether they're on the NASDAQ or the New York Stock Exchange.
There are good reasons why it's so popular. For investors wanting (or needing) to improve their diversification, there's a lot to like.
Excellent fees
The IVV ETF is one of the lowest-cost ASX-listed ETFs on the ASX. The lower the costs, the better the net returns are for investors. The stronger the net returns, the more an investor can build their wealth over the years. So, we should really pay attention to management costs for index funds.
It can make a big difference if a fund charges 1% in fees annually compared to 0.10% per year. That difference can compound into a large number over the long term – potentially tens of thousands of dollars (or more).
The iShares S&P 500 ETF has an annual management fee of 0.04%, which is almost nothing.
Diversification
The IVV ETF is an incredibly diversified fund, with 500 holdings. That's 200 more than what is inside the Vanguard Australian Shares Index ETF (ASX: VAS).
Those holdings are spread across a number of sectors, with the biggest allocation to the most appealing industry, in my view. The largest five sectors in the fund are: IT (31.54% of the portfolio), financials (14.28%), consumer discretionary (10.63%), communication (9.60%), and healthcare (9.59%).
I also like that many of the businesses in the portfolio generate earnings from multiple countries, if not from around the world. These are not just American businesses, but global powerhouses that are listed in the US.
Some of the holdings include Microsoft, Nvidia, Apple, Amazon, Meta Platforms, Broadcom, Alphabet, and Berkshire Hathaway. I'd call these some of the best businesses in the world, with incredibly strong financials and leading market positions.
Strong returns
Past performance is not a guarantee of future performance, and I'm not expecting the huge US tech companies to grow at the pace that they have over the past decade due to their ever-increasing size, but the IVV ETF has done very well.
I'm expecting the strongest businesses in the world to continue benefiting from trends like AI, cloud computing, and so on, which could help their earnings continue growing for years to come.
In the past ten years to May 2025, the IVV ETF has returned an average of 14.6% per year.
Assuming the US and global economies continue growing, I'm confident the companies inside the iShares S&P 500 ETF can continue performing too.
