Why the S&P 500 matters to UK investors
With the presence of online trading platforms, it has never been easier to invest in the S&P 500, even if you are based outside of the US. S&P Global reported that 28.9pc of the total revenue generated by the S&P 500 companies came from non-US sources during Q2 2024, reflecting the global nature of the index fund.
The US stock exchange and, therefore, the S&P 500 is a crucial benchmark for global equity performance. Investing in the S&P 500 offers exposure to some of the world’s biggest and most influential companies, which is likely to be of interest to UK and other foreign investors.
In order to invest in the S&P 500, simply follow these five steps:
- Choose an investment platform, such as Hargreaves Lansdown, Interactive Investor, Trading 212 or AJ Bell.
- Open an investment account, such as an Isa or General Investment Account. You can also track the S&P 500 through your pension.
- Pick a fund or exchange-traded fund (ETF) that tracks the index
- Compare fees and fund types to ensure you get the best deal
- Place your order and monitor performance
S&P 500 funds vs ETFs
There are two types of financial product that allow you to track the S&P 500:
- S&P 500 ETFs: Exchange traded funds give investors access to a broad basket of shares – often replicating an index like the S&P 500 – that is traded on the stock exchange. Some will track the whole index, others will track part of it, for example financial or tech stocks only. Vanguard’s S&P 500 UCITS ETF and iShares S&P 500 UCITS ETF USD both provide core exposure to the index, while tech enthusiasts might prefer the more focused iShares S&P 500 Information Technology Sector UCITS ETF
- S&P 500 tracker funds: It’s also possible to buy passively managed mutual funds that replicate the performance of the S&P 500, for example the HSBC American Index Fund, or the Fidelity Index US Fund
Index funds and indexed focused ETFs are both low-cost passive investment strategies that will seek to replicate the performance of a particular index. So, in this case, the S&P 500.
The real difference lies in the fact that ETFs are traded on the stock market like shares. This means they can be traded throughout the day, at a fluctuating price. Funds, meanwhile, will only be valued and traded once a day.
Investors could purchase individual shares in companies listed in the index, if they know which parts of the market they want to capture. However, it would be difficult and expensive to build a share portfolio that accurately reflects the overall performance of the S&P 500.
Advantages
- Getting exposure to an index like the S&P 500 is easier and cheaper than building a portfolio of shares yourself.
- Investing into an index offers instant diversification – in this case to 500 companies.
- Largely consistent returns – the S&P 500 has offered investors average annualised returns of 10.26pc between 1957 and the end of 2023.
Disadvantages
- The S&P 500 doesn’t offer investors exposure to smaller US firms, which may have greater growth potential.
- Some investors may be wary of the weighting of tech stocks in the index.
- It’s unclear how global stocks will preform with the ongoing impact of the tariff announcements.
The S&P 500 offers investors exposure to the biggest companies in the US – including the “Magnificent Seven” – that have been driving technological innovation in artificial intelligence, electric vehicles, e-commerce and social media.
But with tech stocks accounting for roughly a third (29.18pc) of the index in April, an investment into a fund that replicates the S&P 500 may not be quite as diverse as it initially appears. By comparison, the second and third biggest sectors – financials and healthcare – only account for 14.4pc and 11.4pc of the index respectively.
This means it’s essential investors don’t rely too heavily on the S&P 500 and use it instead as part of a balanced portfolio.
How can beginners invest in the S&P 500?
The easiest and cheapest way for beginners to invest in the S&P 500 is to use either an ETF or mutual fund that gives investors access to a basket of shares that mirrors the index.
What is the average annual return for the S&P 500?
The average annual return for the S&P 500 since the index was created in 1957, is 10.26pc a year.
Can you invest directly in the S&P 500?
Investors can buy shares in the individual companies listed on the S&P 500, but it’s cheaper, easier and more efficient to get exposure to the whole index by investing in an S&P 500 ETF or S&P 500 index tracking fund.
US Edition
