I like to write about ETFs as I have the majority of my stock portfolio in ETFs I find them a passive way to invest money wisely and they don’t require much maintenance in terms of keeping track of stocks etc. For me, it is more of a set-and-forget approach instead of keeping track of all companies in a portfolio. In this article, we are looking at the iShares Core S&P 500 UCITS ETF, and my personal review related to this ETF with this will also share how I see it in terms of dividend investing.
An exchange-traded fund is represented as a stock in the stock market so by holding this specific stock you are holding a basket of stocks that correspond to an index (portfolio benchmark) that it is tracking.
This is a more growth-oriented ETF and its main goal is to track stocks from the United States, at the time of writing is paying out a dividend yield of just above 1.5% which is not necessarily the highest and is close to its historical lows from a dividend perspective. However, this ETF is not focused on only providing income so a yield on its own won't tell us the full story therefore we need to look further into it.
This ETF is available in two versions an accumulation version and a distributing version. IUSA is the distributing version which means the dividend payments are distributed to the shareholders while CSPX is accumulated instead which may have tax implications as dividends may not be taxed when it is paid out to the shareholders, of course, this has to do with the local jurisdiction and their specific laws. Secondly, using an accumulated version means that dividends are reinvested immediately instead of the shareholder having to reinvest manually.
The current benchmark/portfolio
The fund seeks to track the performance of an index composed of 500 large-cap U.S. companies. It would be good to investigate the benchmark in more detail and the methodology in more detail on their site. In essence, the benchmark is quite straightforward.
The ETF currently holds about 500 stocks which provides more than plenty of diversification. When it comes to geographical diversification, this ETF provides exposure to US stocks, which seems to be very limited at first but historically the United States has performed very well. One thing to note is while the exposure is limited to only US companies, many of these large companies have exposure and revenue around the world.
However, it cannot be denied that this ETF doesn't provide any exposure to companies outside the united states and it is a disadvantage.
When looking at ETFs I find it crucial to have a look at the top 10 holdings to get a good feeling of the ETF and to see if it fits my profile and to see if these would be companies I would invest myself in individually. In this case, the top 10 holdings are representing almost 24% of the total holdings which does not necessarily give the best overview, however, this is to be expected with more than 500 holdings.
The top 10 holdings:
Apple Inc. - 6%
Microsoft Corp. - 5%
Amazon.com inc. - 3%
Berkshire Hathaway inc. - 2%
Alphabet Inc. Class A - 2%
Alphabet Inc. Class C - 1%
Exxon Mobil Corp. - 1%
UnitedHealth Group Inc. - 1%
Johnson & Johnson -1%
Nvidia Corp. - 1%
It is also important and interesting to look at sector diversification as it provides a good idea of how this fund is allocated through various sectors.
The top 5 sectors:
Technology -26%
Health Care - 15%
Financials - 12%
Consumer discretionary- 10%
Industrials - 9%
Conclusion:
Overall, we can see that the holdings are quite diversified. I like the exposure to these companies, however, they only represent 24% of the total holdings, so it definitely is worth having a further look. Looking at the sector diversification gives a better overview of the total composition of the ETF. For my personal taste, overall there is a nice balance with a focus on technology and I find for my personal taste some lacking such as consumer staples However, this is a personal preference and I find it quite balanced with some focus on technology.
Expense Ratio
When it comes to the expense ratio, the lower the better and I would generally like to see an expense ratio below 0.5%. Overall in Europe, I find the ETFs available a bit more expensive than what is available in the United States. In this case, this ETF has an expense ratio of 0.07% Which is very low and therefore very good. the S&P500 ETFs are known to have the lowest expense ratio due to the competition and complexity.
Performance
Since this is a more growth-oriented ETF I want to look at both the capital appreciation, as well as the dividend growth over the last couple of years. Purely looking at capital appreciation over the last 5 years this fund has increased by over 52% (distributed ETF) However, looking at a longer period this fund has performed better than this. When it comes to dividend payout, In 2018 this fund was paying out 0.14 Euro and this last year it paid out 0.19 Euro. In the last few years, this means that we had an increase of 36% compared to 2018, which is about more than a 6% compound annual growth rate. US companies generally have very good dividend growth track records. Based on this information, I conclude that there was a decent appreciation in the stock price, however, the income increases are quite interesting as well based on my own estimates and calculation.
Pros
I find that there is quite some nice diversification in this fund in terms of allocation and amount of stocks.
Secondly, since it is an ETF I find it a good way to set and forget and is quite passive in nature.
Thirdly, it has historically seen some decent growth and decent dividend growth
Fourthly, the top holdings are companies that I know and would like to have as part of my portfolio overall.
Finally, there is a very low expense ratio for a historically proven ETF
Cons
I find personally that the sector diversification doesn’t fully fit my taste.
Secondly, this is a US ETF and therefore has no exposure to companies around the world
Thirdly, the starting yield is not high and the question is, is the dividend growth enough over time, again we also need to look at the capital appreciation over time. For me, it all has to do with how much time you have to let it compound.
Fourthly, as with all funds, it is not possible to choose the individual holdings so basically whether you like a stock or not in a fund, you are holding that stock indirectly, basically you are buying the winners and losers and trying to achieve a market return based on the index.
Conclusion
I currently don't hold this ETF in my portfolio as I currently hold the Vanguard All-World UCITS ETF Review (VWRL) which provides me with a similar profile but more global exposure. I may however in the future decide to invest in this ETF if I want more exposure to the United States with a lower expense ratio.
I want to tap into my stocks or dividends in over 20 years or so. It is to be noted, that this is not a dividend ETF, but a more growth-oriented ETF and needs to be looked at as such. That means that in my opinion focusing only on this ETF would not provide me with the best outcome that fits my goals.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice. For me, it's crucial to supplement my knowledge with resources like videos, articles, and books to deepen my understanding of investing principles and strategies.
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