The global nature of financial markets means that UK investors have the opportunity to invest in a variety of international markets and instruments to optimize their returns. This trend is also fueled by a revolution in the brokerage industry, which has resulted in trusted brokers offering convenient ways to invest outside of the UK.
One area that is an obvious target is the US stock market. US investors have been at the forefront for several decades and as such there is a wide range of investment opportunities. An excellent example is the S&P 500 Index, which consists of the 500 largest publicly traded stocks in the United States.
Investing in a US-based product may seem daunting at first, but is made easier by the fact that fund managers offering ETFs track the performance of the S&P Index (Exchange traded funds). These are cheap, easy-to-use tools and some S&P 500 index tracking funds can be purchased in the form of a sterling share class to avoid currency market complications.
Analysis of the top funds in the S&P 500 Index for UK investors provides a list of funds that can offer relatively stable returns. This consistency is one of the main reasons why seasoned professionals recommend investing in an S&P index as a core component of most investment portfolios.
Let us further explore which of these funds are valuable activities for UK based traders.
Why are S&P 500 index funds so popular?
At AskTraders, we previously provided adetailed breakdownhow the S&P index was created and how it works. However, the most important feature of the index, and one of the reasons why it can be considered so popular with UK investors, is its ability to spread risk and exposure across a large number of the world's largest companies. .
The S&P 500 Index includes multinational companies such as Apple Inc, Microsoft Corp, and Tesla Inc, as well as some smaller companies that are not household names outside of the US. Diversifying investments across a large number of companies allows investors take advantage of large-cap companies that offer stability andgrowth stocks, which offer a higher risk/reward ratio. It also protects against the risk of a single action choice going wrong.
The companies that make up the S&P Index are listed on Tier 1 exchanges in the US, such as the New York Stock Exchange and the NASDAQ Exchange, but are also foreign-oriented: many operate globally and have histories of earn steady income.
The way S&P index funds are distributedRiskit does not force investors to sacrifice returns. Between March 2016 and September 2022, the S&P Index doubled in value. That growth is also inherently relatively stable, reflected in the fact that over a 10-year period beginning in 2012, the S&P index fell for only one year, in 2018. The best annual performance was in 2019, when the index reached an impressive 31.49%. increase in value.
S&P 500 index funds are also very transparent. Despite being made up of 500 different companies, it is still possible to drill down to find the main metrics used in thefundamental analysispreferred by long-term investors. For example, the P/E for September 2022 was an attractive 22.89 and the average annual dividend yield was 1.7%.
Annual Return and Price Volatility of the S&P 500 Index
|Again||Total calendar return (including dividends)||Volatility ($)|
Quelle: SPGlobal / Netcials
Which UK S&P 500 Index Funds Are Worth Investing In?
The S&P 500 Index was created and continues to be managed by the market data firm Standard & Poor's, which manages the index rather than offering instruments for purchase. Due to the popularity of the index and its role as a hedge for the broader stock market, major well-known investment management companies offer index tracking fund products that investors around the world can purchase.
Given the benefits of investing in the S&P Index, there are many tracker funds to choose from. Competition between companies helps keep costs down, but finding the best S&P index fund for UK investors can be a daunting task. Because the benefits are clear, below is our list of the best Sterling S&P 500 ETFs.
One of the advantages of ETF tracker funds, and ETFs in general, is that they tend to have relatively low administration costs. Research from fund manager Vanguard estimates the average expense ratio in the ETF industry to be 0.24%. S&P ETF expense ratios are typically even lower because the underlying instruments are highly liquid stocks with tight bid-ask spreads.
The expense ratio reflects the work the fund manager does when he goes to the market to buy the 500 shares in the index on behalf of his clients. For many, it's a small price to pay for the convenience provided. If an investor were to open a £10,000 position in an ETF with a 0.24% expense ratio, the annual management fee would be £24.
An additional feature that UK investors in S&P tracking funds should be aware of is currency risk. Because the Index and its members are denominated in US dollars, movements in the currency markets can affect performance, as can changes in share prices. For example, consider a hypothetical situation in which the value of the S&P Index has not changed for a period of time. If the exchange rate between USD and GBP fluctuated by 10% at the same time, the net return to investors would differ by 10% even if the underlying stock prices stayed the same.
To mitigate this risk and lower the barriers to entry for UK S&P Index investors, some fund managers have launched sterling-denominated products. There is no need to convert GBP to USD, instead the fund manager does the necessary background work so that deposits and withdrawals are all based on GBP.
VANGUARD S&P 500 UCITS ETF – GBP (US)
The Vanguard S&P 500 UCITS ETF – GBP (VUSA) tracks the performance of the S&P 500 Index and is denominated in GBP. It was first listed in 2012 and as an Irish UCITS investment product it can be part of an ISA investment portfolio. The way this S&P tracker fund caters to UK investors doesn't mean it strays from its primary goal of investing in the biggest shares of US-listed companies.
As of September 2022, the fund has a market capitalization of $30.1 billion and an expense ratio of 0.07%. Vanguard has a reputation for offering low-cost transactions, and this expense ratio means that for every £10,000 invested, they lose just £7 a year in fund administration costs.
Vanguard S&P 500 UCITS ETF - GBP - Weekly Price Chart - 2012 - 2022
Which one: IG
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To allow newcomers to gain a foothold in the stock market, the minimum amount of money needed to buy the fund is £500. Long-term investors looking to build a position gradually can pay ongoing monthly payments of £100 or more. , paid by direct debit. .
Xtrackers S&P 500 UCITS ETF 2C – Cobertura GBP (XDPG)
London-based DWS Investments UK Limited offers its Xtrackers S&P 500 UCITS ETF 2C – GBP Hedged Fund to UK investors looking to buy the S&P sterling index. It has been in operation since 2015 and is based in Ireland, thus falling under the regulatory umbrella of the Central Bank of Ireland. The fund is listed on the London Stock Exchange under the symbol XDPG, but aims to track the performance of the S&P Index and therefore focuses on US stocks.
The total expense ratio is 0.09%, slightly higher than Vanguard's equivalent. In cash terms, this difference equates to an additional £2 per year allocated to management fees per £10,000 of investments.
Xtrackers S&P 500 UCITS ETF 2C – Cobertura GBP (XDPG) – Wochenchart – 2016 – 2022
Which one: IG
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Price volatility data for the Xtrackers GBP fund provide additional insight into the attractiveness of S&P index tracker funds. Over the past five years, the fund's volatility was 21.39%. This relative stability makes it easy for investors to hold positions when markets experience stress or even see dips as an opportunity to increase buying activity.
The iShares Core S&P 500 Index ETF GBP Hedged is one of the funds offered by BlackRock Inc. It is registered in Ireland, has appointed State Street as fund manager, is regulated by the Central Bank of Ireland and is listed on the London Stock Exchange. London with the GSPX symbol.
The BlackRock fund manager's pedigree is an attractive feature of the fund. There is additional security for investors when they sign up with arguably the largest investment manager in the world. Another factor that will appeal to long-term UK investors is that the product can be held in tax-efficient 'envelopes' such as a SIPP.
Which one: IG
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With a market capitalization in the region of $54.6 billion, the iShares ETF is one of the largest sterling-denominated funds in the S&P 500 Index. The 0.10% expense ratio is slightly higher than some of the their peers. However, given the management fee, the cash difference is small. GSPX remains popular with investors who value the added security of the iShares and BlackRock brands.
Whether you are a new investor or a seasoned trader, the S&P 500 Index is often recommended as an asset to play an important role in your portfolio. The way that low-cost ETFs simplify the investment process is another reason to choose one of the funds above and buy the top 500 US companies in a single transaction.
GBP share class funds also take the currency 'noise' out of the equation for UK citizens. It's possible to opt for a dollar-denominated S&P tracker fund, but for many UK S&P Index investors, buying the sterling-denominated share class makes sense.
The S&P 500 Index is suitable for buy and hold investors. For this reason, and although the funds follow the same underlying instrument, it is worth considering the credentials of the fund manager with whom you will be placing the funds. It is also important to consider the financial health of the broker you choose to hold your positions with.
AskTraders has compiled a list ofreliable brokersall verified by the AskTraders team. Reviews have been carried out to ensure that these brokers provide a high level of service, are well regulated and offer the best way to buy one of the most popular investment products on the market.