S&P 500 index ETFs for non-US investors

Investment

Why S&P 500 index ETFs?

  • Broad Exposure to Leading US Companies: The S&P 500 index includes 500 of the largest publicly traded companies in the United States, representing a wide array of sectors such as technology, healthcare, finance, consumer goods, and more. By investing in an S&P 500 index ETF, investors gain exposure to these leading companies, which are often considered the backbone of the US economy.

  • Diversification: The S&P 500 index provides diversification across multiple sectors and industries within the US market. This diversification helps spread risk and reduces the impact of poor performance from any single stock or sector.

  • Historical Performance: Historically, the S&P 500 index has delivered strong long-term returns. It has been a benchmark for the US stock market and is widely regarded as a reliable indicator of overall market performance.

  • Liquidity and Accessibility: ETFs tracking the S&P 500 index are highly liquid, with shares traded on major stock exchanges. This liquidity ensures that investors can easily buy and sell shares at prevailing market prices throughout the trading day.

  • Cost-Effectiveness: S&P 500 index ETFs typically have lower expense ratios compared to actively managed funds. This makes them a cost-effective way for investors to gain exposure to a diversified portfolio of US stocks.

  • Passive Investing Strategy: Investing in an S&P 500 index ETF follows a passive investment strategy, meaning it seeks to replicate the performance of the index rather than trying to beat the market. This approach can be appealing to investors who prefer a hands-off approach to investing or who believe in the long-term growth potential of the US economy.

  • Benchmarking and Performance Tracking: Many investors use the S&P 500 index as a benchmark to compare the performance of their portfolios or investment strategies. Investing in an S&P 500 index ETF allows investors to easily track their performance relative to this widely recognized index.

  • Dividends: The S&P 500 index includes many companies that pay dividends regularly. Investors in an S&P 500 index ETF may benefit from dividend income, which can provide a source of passive income or be reinvested to enhance total returns.

Drawbacks

  • Lack of Diversification: The S&P 500 index ETF primarily includes large-cap U.S. stocks from 500 of the largest companies listed on U.S. exchanges. While these companies are diverse across sectors, the ETF itself is concentrated in U.S. equities. This lack of global diversification means you may miss out on potential returns from international markets.

  • Sector Concentration: The S&P 500 index is weighted by market capitalization, meaning larger companies have a bigger influence on the ETF’s performance. Therefore, sectors that dominate the index, such as technology, healthcare, and financials, can have a disproportionate impact on the ETF’s returns. This concentration can increase risk if those sectors underperform.

  • U.S. Market Dependency: The performance of an S&P 500 ETF is heavily dependent on the U.S. economy and market conditions. Economic downturns, political events, or regulatory changes specific to the United States can significantly affect the ETF’s performance.

  • Currency Risk: If you’re investing in an S&P 500 ETF but your base currency is different from the U.S. dollar, currency fluctuations can impact your returns when converting back to your local currency.

  • Limited Growth Opportunities: While the S&P 500 includes large, established companies, it may not capture the potential growth opportunities available in smaller-cap stocks or in emerging markets. Investors seeking higher growth potential may need to diversify their portfolio beyond just the S&P 500 ETF.

  • Valuation Concerns: At certain times, the S&P 500 index and thus the ETF may be perceived as overvalued or undervalued based on market sentiment and economic conditions. High valuations could lead to lower future returns if earnings growth does not justify current stock prices.

  • Management Fees: While generally lower than actively managed funds, S&P 500 ETFs like SPY still charge management fees. Over time, these fees can impact overall returns, especially in comparison to lower-cost index funds or ETFs.

  • Market Efficiency and Tracking Error: While index ETFs aim to replicate the performance of the index they track, there can be tracking error due to factors such as trading costs, dividend reinvestment, and imperfect replication of index components. This means the ETF’s performance may not perfectly match the S&P 500 index’s performance.

Top Holdings

CompanyWeight
Apple6.91%
Microsoft6.86%
NVIDIA6.09%
Amazon.com3.63%
Meta Platforms2.19%
Alphabet A2.17%
Alphabet C1.82%
Berkshire Hathaway1.73%
Eli Lilly1.44%
Broadcom1.43%
Top 1034.23%

ETFs

Here’s a list of accumulating S&P 500 index ETFs listed on the London Stock Exchange. All are Ireland-domiciled, allowing them to benefit from a 15% US tax treaty rate on dividends, unlike the 30% rate for nonresident aliens from countries without a treaty.

NameTickerIndexProviderTER(%)Size(USD mill)
SPDR S&P 500 UCITS ETF USD Unhedged (Acc)SPYLS&P 500State Street0.033,762
Invesco S&P 500 UCITS ETFSPXSS&P 500Invesco0.0529,464
iShares Core S&P 500 UCITS ETF (Acc)CSPXS&P 500Black Rock0.0790,686
Vanguard S&P 500 UCITS ETF (USD) AccumulatingVUAAS&P 500Vanguard0.0713,261

Check the performance of the ETFs on Google Finance.

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