3 things I love about the iShares S&P 500 ETF right now

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computerThe iShares S&P 500 ETF (ASX: IVV) could be one of the best exchange traded funds (ETFs) for Aussies to consider for their portfolios.

There are a few things I look for when it comes to ETFs.

Firstly, I want to see that the ETF has quality holdings.

Next, I like to know that the ETF is sufficiently diversified or can improve the diversification of an existing portfolio.

Finally, I’d prefer the ETF to have relatively low management fees. I don’t want my portfolio to be paying excessive management fees to the fund provider.

So, let’s look at each of those areas.

Quality holdings

The first reason I like the IVV ETF is because of the high-quality nature of its holdings.

This ETF is invested in 500 of the biggest companies invested in the US. It’s an index fund that follows the S&P 500 Index.

When it comes to world leaders in various sectors of the global economy, plenty of them can be found in the US.

Areas like smartphones, software, e-commerce, cloud computing, electric vehicles, online streaming, and many more are represented in the biggest holdings of the fund.

Here are some examples of those leading businesses: Apple, Microsoft, Alphabet, Amazon, Tesla, Berkshire Hathaway, UnitedHealth, Nvidia, Johnson & Johnson, Meta Platforms, Procter & Gamble, Visa, Mastercard, Costco, Broadcom, Adobe, and McDonalds.

While past performance is no guarantee of future returns, the iShares S&P 500 ETF returned an average of 17.4% per annum over the ten years to 30 June 2022. I think that demonstrates how well the underlying businesses have done over the last deade.

As new businesses become important players in the share market, they can grow their position in the ETF’s holdings.

Diversification

This ETF offers Aussie investors the potential to buy a wide array of great businesses.

But, I think it’s useful because of the fact that it offers exposure to different sectors than the S&P/ASX 200 Index (ASX: XJO). The ASX is focused on two sectors: resources and banks.

But, the IVV ETF has a heavier weighting to sectors that typically have attractive margins and better growth profiles – namely technology and related areas.

Let’s look at the sector breakdown at 2 August 2022.

IT (27.85%)

Healthcare (14.26%)

Consumer discretionary (11.54%)

Financials (10.5%)

Communication (8.42%)

Industrials (7.81%)

Consumer staples (6.68%)

Energy (4.3%)

Utilities (3.02%)

Real estate (2.86%)

Materials (2.49%)

Low management fees

The iShares S&P 500 ETF has one of the lowest management fees of the whole ETF sector on the ASX.

Its annual management fee is just 0.04%. That means almost all of the returns generated by the IVV ETF portfolio stay in the hands of investors rather than being paid to Blackrock, the provider of the ETF.

We don’t know what the returns of an index or individual company are going to be, but we can ensure that fees paid are as low as possible (or are worth it).

With this investment option, I think investors can be happy knowing that we’re getting good value for money with this option.

Foolish takeaway

I’m a fan of this ETF. It ticks the boxes of the factors that I outlined earlier. The lower price in 2022 for this investment puts the icing on the cake – it’s down 10% since the start of the year.

The post 3 things I love about the iShares S&P 500 ETF right now appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Adobe Inc., Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Costco Wholesale, Mastercard, Meta Platforms, Inc., Microsoft, Nvidia, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and UnitedHealth Group and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $420 calls on Adobe Inc., long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), short January 2024 $430 calls on Adobe Inc., and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Adobe Inc., Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Mastercard, Meta Platforms, Inc., Nvidia, and iShares Trust – iShares Core S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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