iShares S&P 500 ETF (ASX: IVV) is up 1.03% to $64.65 per unit on Tuesday.
IVV ETF has been a popular choice among investors seeking exposure to the roaring US stock market over the past three years.
IVV is now the third largest ASX ETF out of more than 400 on the market, with more than $11.67 billion invested in it.
However, last month, IVV ETF recorded the highest investment outflows, indicating an exodus amid the Iran war.
Aussie investors took $461 million out of the exchange-traded fund (ETF) in March, based on ASX data analysed by Betashares.
However, investors have not given up on US shares, with $232 million flowing into IVV ETF's currency-hedged counterpart in March.
That's the iShares S&P 500 AUD Hedged ETF (ASX: IHVV), which is up 1.62% to $62.68 per unit today.
This indicates investors still want US exposure but are mindful of the weaker USD against the stronger AUD today.
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Stronger Aussie dollar weakens IVV ETF returns
The Australian dollar has risen almost 20% from just over 60 US cents 12 months ago to a three-year high of 70.8 US cents today.
As James Gruber, Equity Market Strategist at CommSec, explains:
When the Australian dollar strengthens, your international ETF returns shrink, and if the Australian dollar weakens, your returns improve.
To put that into perspective: last year, the S&P 500 delivered total returns of 17.88%, but IVV ETF investors received just 10.75%.
The US dollar has weakened due to expectations of interest rate cuts, concerns over the impact of tariffs, and geopolitical uncertainty.
Meanwhile, the AUD has strengthened given Australia has entered a tightening rate cycle, with two rate hikes so far in 2026.
There is also strong demand for our commodities, which foreign buyers purchase with Australian dollars, amid a new mining boom.
Investors prefer IHVV over IVV today because hedged ETFs reduce the impact of currency movements on investments.
Gruber explained:
For example, you may invest in an ETF that tracks the S&P 500 index. If it is unhedged and if the Australian dollar strengthens after you buy it, your returns in AUD may drop, even if the underlying investments do well in their home currency.
Conversely, if the Australian dollar declines, the value of an unhedged ETF may rise in AUD terms, assuming the underlying asset holds or increases in value.
Gruber points out that currency-hedged ETFs typically cost more than unhedged ETFs.
Case in point: IHVV has management fee of 0.1% while IVV has a fee of 0.03%.
US shares vs. ASX 200 in 2026
The S&P 500 has substantially outperformed the S&P/ASX 200 Index (ASX: XJO) over the past three years.
But change is afoot this year.
So far in 2026, the S&P 500 has lifted 0.6% while ASX 200 shares have increased 2.9%.
Gruber points out that a key difference between the two benchmark indices is their exposure to technology companies.
That's significant because a global tech wreck is underway, as investors fret over the impact of artificial intelligence (AI).
Illustrating the difference, the IVV ETF is 34% tech stocks, while the ASX 200 has just a 3% exposure to technology.
Gruber said:
… the S&P 500 leans heavily on technology stocks.
If you add the likes of Amazon and Tesla – classified as consumer discretionary stocks in the S&P – and Meta and Alphabet – included in the communications sector – to the technology sector, then tech accounts for more than 40% of the S&P 500 index.
