There are several opportunities to operate on one of the most important indices of the American stock exchange as the Standard & Poor’s ETF 500. One example is to invest on an ETF. Why can it be a useful financial instrument? What are the best ETFs on the S&P 500? Below we are going to answer these questions, assessing what are the advantages and how to invest.
What are S&P 500 ETFs
S&P 500 ETFs are special passively managed investment funds that replicate the performance of the S&P 500 index. This means that the value of the fund is closely linked to the price of the financial product of reference. In particular, the Standard & Poor’s can be considered, after the NASDAQ among the main indices of the American market. In fact, while the latter includes all the companies in the hi-tech sector, the S&P 500 groups together the 500 companies listed in the USA on the basis of their capitalization.
How they work
S&P 500 ETFs are a financial product whose performance is closely linked to the rise or fall in the prices of the largest capitalization companies on the American market. Moreover, they have a passive management. This element distinguishes them from other types of investment funds, as it limits the operations by the management companies. Just consider that within an S&P 500 ETF there can only be securities that are part of this index and therefore reflect the nature of the fund. This is a useful factor since it offers a certain security in returns.
Composition
The composition of an S&P 500 ETF varies according to the type of replication of this instrument. There are two opportunities: physical replication or synthetic replication. In the first case, the Exchange Traded Fund will reproduce the entire basket of securities present in the S&P 500 index, and therefore a return that reflects the index itself will be obtained. On the other hand, when referring to synthetic replication, the composition of an ETF can vary by including a certain number of securities that are chosen by the management company. This implies that the performance of the ETF differs from that of the index, obtaining a return closely linked to that of the individual securities present within it.
Best S&P 500 ETFs
Today there are 14 S&P 500 ETFs with different characteristics and different investment opportunities. Evaluating the best ones is not a simple operation, therefore it may be useful to take into consideration some parameters. Firstly, you can evaluate the size of the fund and the type of replication. In addition, you can consider the date of creation of the same, a factor that can offer greater security in the investment. Another aspect to consider is the volatility parameter, reflecting the risk index of the fund itself. Finally, the management costs and the composition of the fund should be considered. Here are the best S&P 500 ETFs.
Invesco S&P 500 ETF
The ETF can be identified by its ISIN code IE00B3YCGJ38 and ticker SPXS. It was created on May 20, 2010 by the company Invesco, with a synthetic replication. It can be considered among the best S&P 500 ETFs thanks to a high cost to size ratio. In fact, it is among the largest funds present with $11 billion in capital and an annual expense of 0.05%. It also predicts a volatility of 14.51%, and a return that is between 2%% and 33% over 12 months.
iShares Core S&P 500 ETF
The issuer is the company iShare among the largest as far as investment funds are concerned, placing this ETF on the market with the ISIN code IE00BMR087 in 2010. The volatility index is average, with a capitalization of over $49 billion, making it among the largest Exchange Traded Funds. It is also considered among the best, thanks to a 6-month return of 6.73%, and a 12-month return of 25%. It can also be a good long-term investment as it provides a 74% return over the three years. Finally, it is also among the cheapest investment funds with a cost of 0.07%.
Vanguard S&P 500 ETF
The ISIN code of this ETF is IE00B3XXRP09, which can also be identified by the ticker VUSA. It is an ETF listed in 2012 by a company like Vanguard Global Advisers, which is considered to be among the top issuers of investment funds in America and the world. The fund has a size of 28 billion with an annual cost of 0.07% and a total replication of the S&P 500 index. Its composition makes it a medium volatility product, as 29% of the shares are composed of the equity segment, while the remaining part is equally divided among sectors such as health care, consumer goods, telecommunications, energy and industry. Finally, it can be considered a valid investment in the short and medium term with an annual return of 25.20%.
iShares Core S&P 500 ETF
The ETF is listed on the American Stock Exchange under ISIN code IE00B5BMR087 with a price range of $316 to $433. It has a size of $49 billion with an annual return of 25% and volatility of 14.25%. It was listed in 2010 and is considered among the best S&P 500 ETFs also because of its low management fee of 0.07%.
Invesco S&P 500 ETF Dist
The ISIN code is: IE00BYML9W36. The ETF was created in 2015 and today has reached a size of about $2 billion. It provides for a synthetic replica of the S&P 500 index with one of the lowest volatilities at 14.43%. It can be evaluated as an interesting investment, thanks to a yield of 34% with a cost of 0.05% per year.
How to invest in ETFs
Digitization and the Web have offered several opportunities to invest in S&P 500 ETFs. In fact, today you have the possibility of entrusting your money to an intermediary, or of operating completely independently.
In the first case you can turn to an advisor or a financial bank asking to invest on Exchange Traded Fund with reference to the S&P incide. A system that involves a series of pros and cons. In fact, it can be useful since one will not have to manage money directly, but there are a series of expenses, even very high ones, that reduce the gain connected to the return of the ETFs.
The other opportunity is to invest in full autonomy using an online platform such as eToro, with reduced expenses, since there are only those related to operations and the ability to check at any time the performance of the investment.
Advantages and Risks: Is it worth investing in S&P 500 ETFs?
The answer to this question is positive, given the characteristics of the ETFs and those of the S&P 500 index. In fact, you will have a financial product whose yield replicates an average of the stock prices. This implies that you will potentially be able to make a profit even in times of market uncertainty. Furthermore, the large number of S&P 500 ETFs allows you to evaluate the most suitable one for your securities portfolio. Finally, the risks are medium to low, thanks to low volatility.