Blackrock iShares USA S&P 500 (ASX:IVV) ETF review by a personal finance expert and long term investor.
- Australian Domiciled fund
- Has Dividend Reinvestment plan
- Holds 500 biggest USA companies
- Only tracks top 500 US companies rather than whole index
- Higher management fee than Vanguard VTS
- Very heavy on Tech stocks
Verdict: Blackrock IVV is a great way to get US exposure, but I choose Vanguard VTS
Blackrock is an American global investment management corporation based out of New York and is one of the world’s largest investment asset managers, with over (USD) $6.84 Trillion in assets under management as of 2019. They operate globally in over 100 countries, and their largest division is iShares – a group of over 800 exchange traded funds, which is the largest ETF provider in the world, beating Vanguard for the top spot.
IVV is one of iShares (by BlackRock) most popular ETFs – which tracks the total US market. IVV seeks to track the investment results of large-cap US stocks against the S&P US 500 index. This particular fund is domiciled in Australia (ASX:IVV), and has over (AUS) $3.2 Billion under management in it. Because it’s domiciled in Australia (switched from a cross-listing to a dedicated local Australian ETF in 2018), Australians won’t have to submit any foreign tax forms to the US (like you need to with Vanguard total US market ASX:VTS ).
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The Top ten holdings of IVV are Microsoft, Apple, Amazon, Facebook, Berkshire hathaway, Alphabet (google), JPMorgan Chase, Johnson and Johnson and Visa, which combined account for 21.57% of the total portfolio. This demonstrates the portfolio diversification, despite the naysayers which coo the absolute opposite. The Management fee is a ‘black’Rock bottom at .04%, matching the Vanguard fund VTS.
The S&P 500 index incorporates approximately 77% of all publicly traded US securities (companies). IVV aims to fully replicate the index, which has a minimum market cap of around $5B. This means IVV might do slightly better if small caps are struggling such as in a bear market, or otherwise, it should go down less, compared to managed funds or ETFs that hold more smaller capital securities.
As of October 2019, over the past year IVV has returned 10%, over 5 years 17.43% and since inception (20 years – including GFC) the return was 4.78%.
The dividend yield on IVV is currently at 1.66%, so it’s clear that the IVV ETF is more suited for a Boglehead style investor looking for capital gains, than a Thornhill style dividend investor looking for increasing dividend income.
To fully live off this stock, you would need to sell down portions of it in retirement (and if you held this over 12 months, you would receive a 50% CGT reduction).
IVV gives me exposure to the US S&P 500 at an incredibly low price. It has very good liquidity with approximately 800M+ shares trading hands each day.
Whilst I don’t get the same juicy dividends or franking credits that chasing Aussie shares would give me, IVV gives me great global exposure to some of the biggest US companies which provide long term passive capital gains.
I plan to cash in on this later, and potentially sell off these shares for future spending money in retirement (noting that after holding these shares for 12 months, you are eligible for a 50% reduction in payable capital gains tax in Australia).
IVV and VTS are essentially the same thing, or rather, they give investors a similar amount of exposure risk to the US – they both broadly track the US stock market index. There are a few slight differences between the two (explained below and them summarised in the video).
Whilst they are both broadly speaking US stock market index funds, the BlackRock iShares IVV ETF tracks the S&P 500 (top 500 stocks – blue chips) wheras Vanguard VTS ETF tracks the CRSP US total market index (about 3500 stocks, but heavily weighted to the blue chips because it’s weighted by market cap).
Another consideration in the IVV vs VTS debate is estate tax and inheritances. Because VTS is a cross listed fund, you will need to fill out a W-8BEN-E tax form for the IRS and there can be some complications where the US will actually tax your estate when you die, which obviously isn’t ideal for overseas investors. It’s worth exploring this little complication, and this is not an issue for the BlackRock iShares fund IVV, which is domiciled in Australia.
Furthermore, since IVV is domiciled in Australia, you can participate in a Dividend Reinvestment Plan (DRP) which for some investors helps to simplify and put their investing on autopilot. This feature is not available to the VTS fund; potentially reflected in Management Expense Ratio (MER) difference of IVV being .01% more expensive.
Why not have both!?
I think they are both very high quality products. I have no problems whatsoever holding both funds, and I figure they are essentially the same thing. This means if I have decided to buy US stocks (because Aussie stocks are too expensive and the Aussie dollar is high), I will just buy which ever one has dropped in value the most lately and therefore I’ll pick up slightly better value. What do you think? Have you made the choice between VTS or IVV?
*Edit I have since rolled my IVV holdings over into VTS due to the lower management fee and broader diversification, despite estate taxes, filling out the W-8BEN-E form for the IRS and there being no DRP*
To wrap up, IVV is an incredibly simple fund. It’s just a straightforward S&P500 index tracker, with an incredibly low MER of .04%, a DRP option and a large amount of money under its management. It automatically buys or sells companies based on market cap, and keeps doing so, slowly ticking away in the background. For peace of mind and international diversification, IVV found a place in my FI portfolio. What do you think?
Epilogue: 27th April 2020: I have since sold my holdings of IVV, and now purely invest in the Vanguard VTS ETF for exposure to US stocks. This is because of the lower management fee and wanting to simplify my investment portfolio!