Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

SOME stock markets are harder to beat than others, with one of the toughest being North America. According to the latest SPIVA report from S&P Global, over the 15 years to the end of December 2022, an amazing 93.4% of all US large-cap funds underperformed the S&P 500 index.1

The data shows that the percentage of managers lagging behind the benchmark tends to increase with the length of the period over which they are being measured. Even in a tough year like 2022 when the S&P 500 fell 18%, an environment where stock pickers would be expected to add value, only 49% of them managed to outperform the index.2 Past performance is not a reliable indicator of future returns.

In the face of such convincing data, the obvious conclusion is to consider a low-cost index tracker when investing in large-cap US stocks. A good example is the Vanguard S&P 500 UCITS ETF, which is a member of the Select 50 list of handpicked funds.

The ETF replicates the performance of the benchmark by physically investing in the underlying securities. It has assets under management of almost $33 billion and is incredibly cheap with an ongoing charges figure of just 0.07%. Over the 10 years to the end of August it has generated a cumulative return of 222%, which is slightly ahead of the 215% from the index.3

When investing in this type of product it is essential to fully understand the nature of the benchmark, as this will dictate the level of risk and performance characteristics. The S&P 500 is a capitalisation-weighted index of 500 large sized stocks listed in the US.

The underlying securities have a median market value of $192.5 billion, with the benchmark trading on a price/earnings multiple of 24.2 times and a price-to-book ratio of 4.2. Metrics like this look expensive, but they reflect the high return on equity of 24.6% and earnings growth rate of 18.2%.

Another key point to be aware of is the dominance of certain sectors, especially Information Technology, which makes up 28.1% of the index. The only other areas that account for more than 10% are Health Care, Financials and Consumer Discretionary, with weightings of 13.1%, 12.6% and 10.6% respectively.

Tech stocks have been the principal driver of returns in recent years, but they are highly volatile in nature. Apple now accounts for 7.5% of the benchmark and Microsoft a further 6.5%, with NVIDIA in fourth place at 3.0% following its meteoric artificial intelligence inspired rise. This is something to be aware of if you are also thinking of investing in a specialist technology fund.

Five-year performance table 

(%) As at 30 Sept 

2018-2019 

2019-2020 

2020-2021 

2021-2022 

2022-2023 

Vanguard S&P 500 ETF 

10.1 

9.6 

24.9 

3.2 

9.0 

Past performance is not a reliable indicator of future returns

Source: Morningstar, from 30.9.18 to 30.9.23 Basis: Bid to bid with income reinvested in GBP. Excludes initial charge.

More on the Vanguard S&P 500 UCITS ETF

Source:

  1. SPIVA, S&P Dow Jones, 30 June 2023. 
  2. SPIVA, S&P Dow Jones, 21 Sept 2023. 
  3. Vanguard, 25 Sept 2023 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of a sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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