The iShares S&P 500 ETF (ASX: IVV) has been one of the best performers over the last ten years, producing an average annual return of 15.2% to 30 June 2025. However, the big gains by the largest businesses are causing some complications.
One of the main attractions of the IVV ETF is that it owns 500 businesses, which generally gives it a pleasing level of diversification.
However, if the largest companies continue growing at a faster pace than the rest of the index, then the S&P 500 would become more concentrated in just a handful of names, reducing diversification benefits. If those few names are the best businesses in the world to own, then it's not necessarily a bad thing.
However, investors wanting to maintain diversification may wish to think about adding other ASX-listed exchange-traded funds (ETFs) to diversify their portfolio.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
For investors wanting to maintain their exposure to US shares like the IVV ETF, then the MOAT ETF could be a good way to do it.
This fund has a portfolio of around 50 names which are all judged to be high-quality, attractively priced US shares. Its biggest five positions have a weighting of between 2.6% to 3%. That includes Estee Lauder, Applied Materials, Boeing, Huntington Ingalls Industries and Walt Disney.
All of the companies in the portfolio have economic moats, or competitive advantages, that are expected by analysts to endure for 20 years or more. This creates a good environment for those companies to deliver long-term profit growth.
The analysts only decide to invest when the share price of the business is trading lower than what they think it's actually worth.
In the past 10 years, this ASX ETF has returned an average of 15% per year since inception in June 2015.
Vanguard FTSE Europe Shares ETF (ASX: VEQ)
For investors wanting a different geographic exposure entirely than the IVV ETF, I think this European-focused fund from Vanguard could be an excellent way to get that diversification.
Europe's share market is home to an array of impressive businesses such as SAP, ASML, Nestle, Roche, Novartis and Novo Nordisk. There is a total of more than 1,200 businesses in this portfolio, which is plenty of diversification in my book.
One of the reasons why I think this would effectively balance with the IVV ETF is because while technology is a key focus within the S&P 500, technology is only 8.5% of the VEQ ETF. The other sectors with a larger weighting include consumer staples, consumer discretionary, healthcare, industrials and financials.
These businesses come from a number of countries including the UK, France, Germany, Switzerland, the Netherlands, Sweden, Italy, Spain and Denmark.
I wouldn't say diversification is the only benefit of owning this fund – it has delivered pleasing returns. In the last three years it has returned an average of 15.7% per year and in the past five years it has delivered a return an average return per year of 12.8%.
Another benefit is that it had a dividend yield of around 3% at the end of May 2025.
