The iShares S&P 500 ETF (ASX: IVV) is one of the most popular exchange-traded funds (ETFs) on the ASX. With more than $13 billion under management, it is currently the third-most bought fund on the ASX, and the second-most popular fund that tracks non-ASX shares.
So it goes without saying that there are more than a few Australian investors who own the iShares S&P 500 ETF within their stock portfolios.
But how many of those investors know what they're actually buying when purchasing this index fund? Many might have just heard the legendary investor Warren Buffett endorse an S&P 500 investment and followed suit.
So today, let's get into the S&P 500 ETF and check what ASX investors are really putting their money into when buying IVV units.
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How does the iShares S&P 500 ETF work?
Like most index funds, the ASX's IVV ETF works by mirroring an index. That index, in this case, is the flagship S&P 500 Index (SP: .INX), the most widely tracked of its kind in the world. The S&P 500 represents the largest 500 companies that are listed on the American stock markets, weighted by market capitalisation. Warren Buffett calls this index a 'slice of America'.
It includes everything from the tech titans like Apple, Microsoft, and Amazon to smaller stocks like Ford Motor Co, Colgate-Palmolive, and Kraft Heinz.
So at any one time, an ASX investor who owns the iShares S&P 500 ETF owns a small slice of all of those shares, plus hundreds more. The 500 largest US stocks aren't a static list, though. They are in constant flux, with sizes changing every day that the share market is open. To ensure that the IVV ETF always holds the largest 500 American stocks, it is rebalanced every three months. The stocks that are on the rise get added to the IVV portfolio, while the losers are sold down, and in some cases, removed entirely.
It's for this reason that passive investors love investing in ETFs like IVV. The fund does the hard work for you over time, while you can just leave it in the proverbial bottom drawer.
What does buying IVV get you?
Since IVV is weighted by market capitalisation, the largest American companies get to hold the largest positions in the IVV portfolio. That's why the most valuable US stocks can account for more than 7% of the ETF's portfolio, whilst the smallest barely make an impact at 0.01%.
But let's get into what the iShares S&P 500 ETF's current portfolio looks like.
As of 9 January, this ASX ETF's largest ten holdings are as follows:
- Nvidia Corp (NASDAQ: NVDA), worth 7.53% of IVV's portfolio
- Apple Inc (NASDAQ: AAPL), at 6.42%
- Microsoft Corp (NASDAQ: MSFT) at 5.97%
- Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) at 5.77%
- Amazon.com Inc (NASDAQ: AMZN) at 4.03%
- Broadcom Inc (NASDAQ: AVGO) at 2.73%
- Meta Platforms Inc (NASDAQ: META) at 2.38%
- Tesla Inc (NASDAQ: TSLA) at 2.1%
- Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) at 1.53%
- JPMorgan Chase & Co Inc (NYSE: JPM)
Other big names that are also at the top of the IVV pack include Johnson & Johnson, Visa, Walmart, and ExxonMobil.
You might notice a notable tech bias to IVV's current holdings. Indeed, all seven of the 'Magnificent 7' stocks are in IVV's largest ten holdings. Together, they account for 34.2% of the entire portfolio of the iShares S&P 500 ETF. That means that for every $100 you invest in IVV units, $34.20 ends up invested in these seven stocks. That's something to keep in mind if you're concerned about diversification.
