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Best S&P 500 ETFs on the ASX
Which ETFs provide the best exposure to S&P 500 companies? Keep reading to find out.
Important note
There's no one ETF that's 'best' for everyone. Instead, consider your own individual needs and investment strategy to decide what ETF is right for you. Further, nobody can say for certain which direction a fund will go as past performance is no guarantee of future results. So keep in mind these are ideas only and should not be taken as personal financial advice.
The S&P 500 is a stock market index that tracks the performance of the 500 largest companies in the USA. And if you want to diversify your portfolio and gain exposure to S&P 500 stocks, exchange traded funds (ETFs) offer an easy and affordable way to do so.
But with so many options to choose from, how do you find the best S&P 500 ETFs? To help make your choice easier, we've crunched the numbers to put together this guide to the top S&P 500 ETFs.
How we chose the best S&P 500 ETFs
To select the best S&P 500 ETFs, we looked for funds that offered a combination of the following factors:
- Low expense ratios. We searched for the lowest fees to allow you to keep more money in your pocket.
- Proven track records. We prioritised ETFs with a long track record of delivering promised returns to investors.
- A history of performance that closely tracks the S&P 500. We compared the performance of ETFs over the past 3, 5 and 10 years relative to the S&P 500 Index.
- Competitive annual dividend yields. We also looked for funds that delivered higher (or at least competitive) annual dividend yields compared to other S&P 500 ETFs.
We excluded leveraged and inverse ETFs due to their higher level of risk and the fact that they're not suitable for long-term buy-and-hold investment.
Remember, the funds displayed on this page may not be the best for you and you should always do your own research or speak to a professional.
Best S&P 500 ETFs
In no particular order, here are 5 of the best S&P 500 ETFs that are worth considering if you want to gain investment exposure to large-cap US companies.
This list of ETFs was last updated on 5 June 2024.
Why are S&P 500 ETFs so popular?
There are several reasons why you might want to invest in an S&P 500 ETF:
- Invest in some of the world's largest companies. The S&P 500 features a host of the world's largest companies, including names like Apple, Microsoft, Amazon and Tesla. ETFs allow you to gain exposure to the performance of these major global brands.
- Diversification. A diversified portfolio provides protection against market downturns. One of the biggest benefits of ETFs is that they allow you to invest in a basket of stocks that are spread across multiple sectors.
- Affordable. ETFs offer a low-cost way for investors to gain exposure to a wide range of stocks. Investing in an ETF has much lower brokerage fees than if you were to buy several individual stocks, and you don't need a huge lump sum to get started.
- Stocks picked for you. The average investor doesn't have the time or the expertise to put together a stock portfolio that will match the performance of the S&P 500. But when you invest in an ETF, the stocks are chosen for you.
- Historical performance. Since the index became the S&P 500 in 1957, it has delivered an average annualised return of more than 10%. Past performance is of course no guarantee of future success, but the long-term returns delivered by the S&P 500 are an attractive feature for investors.
- Inverse ETFs available. When stock prices are falling, as occurred in the first 6 months of 2022, you may want to consider inverse ETFs. These ETFs are designed to deliver the opposite return to a specific index – so when the S&P 500 falls, the value of the ETF rises.
- Leveraged ETFs. Another option worth considering is a leveraged ETF, which is designed to magnify the profits delivered by increases in the S&P 500. Rather than tracking the performance of the S&P 500 on a 1:1 ratio, these ETFs are designed to double or even triple price rises. But be aware that they're a high-risk option – the potential for higher returns also means there's the potential for greater losses.
- Other S&P 500 ETFs. It's also worth mentioning that some ETFs with "S&P 500" in their name have different investment objectives. For example, some aim to track the performance of the S&P 500 Equal Weight Index, while others specifically target growth stocks within the companies featured in the S&P 500.
How to choose an S&P 500 ETF to invest in
Remember to consider the following factors when deciding which is the right S&P 500 ETF for your needs:
- Your financial goals. Take some time to consider what you hope to achieve with your investment portfolio. What are your financial goals and what sort of investment timeframe are you looking at?
- Expense ratio. Compare the management fees charged by fund managers. The best ETFs with the lowest fees have an expense ratio of around 0.03%, so you'd pay $3 in fees for every $10,000 invested. If an ETF charges higher fees, check its track record to see whether those fees are justified by higher returns.
- Track record. Check how long each S&P 500 ETF has been in existence and what sort of performance it has delivered in that time. While past performance isn't an indicator of future performance, it's useful to examine how an ETF has performed in the past throughout different market cycles.
- Dividends. Dividends are another important factor to consider when investing in large-cap stocks through ETFs. Check each fund's annual dividend yield to find out how much you'll receive in dividends per year.
- Liquidity. Liquidity is much more of a concern for active traders than it is for long-term "buy and hold" investors. If you're regularly buying and selling ETF shares, look for an ETF with high liquidity to ensure that you can trade when you want.
- Current share price. There are usually no minimum investment amounts to worry about with S&P 500 ETFs. However, you will need to be able to cover the cost of one share plus brokerage to invest in an ETF.
Risks to watch out for
Like any type of investment, S&P 500 ETFs are not without risk. Make sure you're aware of the following risks before investing:
- Expensive management fees. High management fees can eat into your profits, so remember to consider an ETF's expense ratio closely before you invest.
- Bear market risks. While the S&P 500 has historically delivered average annualised returns of over 10%, there have been plenty of periods throughout history where the index has fallen. During a bear market, when prices fall 20% or more from previous highs, this can see S&P 500 ETF share prices drop dramatically.
- Risks of inverse S&P 500 ETFs. Inverse ETFs can help you profit during a bear market, but they do come with a number of risks. They're usually a short-term option and are not suited to a buy-and-hold strategy, so you'll need to monitor the market closely so you can exit an inverse ETF at the right time. In addition, many inverse ETFs use derivatives, which are considered high-risk investments.
- Risks of leveraged ETFs. Leveraged ETFs also come with a high level of risk. Not only is there the potential for magnified losses during periods of volatility, but they're a day-trading strategy rather than a long-term buy-and-hold strategy. They also have higher fees and often use derivatives, which also come with several risks attached.
Bottom line
If you're looking for a simple way to gain exposure to some of the world's largest companies, S&P 500 ETFs offer the ideal solution. There are affordable options available, they take the guesswork out of investing, and they make it easy to diversify your portfolio.
However, it's up to you to compare a range of options to find the right ETF. Consider your own financial goals as well as the management fees, dividend yields and track records of S&P 500 ETFs to find the best fund for your needs.
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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
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