Unveiling the Largest Global Equity ETFs: Beyond Popularity & ASX Options

While size matters in the world of Exchange Traded Funds (ETFs), assets under management (AUM) should not be the sole deciding factor for your investment choices. Warren Buffett’s Berkshire Hathaway also owns two of these index-tracking ETFs in its portfolio.

Let’s delve deeper into the three largest global equity ETFs, unveiling their strengths beyond just AUM.

Investing in the Standard & Poor 500, a widely followed index in the US is a strategy employed by many Australian investors looking to tap into the growth potential of the largest companies in the US.

With its long-standing track record of delivering impressive returns, the S&P 500 has become a favoured choice among smart investors seeking to grow their wealth.

The ‘Big Three ETFs’ are US-based passively managed funds. Two are traded on the Australian Securities Exchange (ASX).

SPDR S&P 500 ETF Trust (ASX: SPY)

SPY is a passive equity ETF by State Street Global Advisors and is the largest and most traded ETF in the world. Primarily listed on US exchanges, it also has a presence on the ASX through Chess Depository Interests (CDIs).

The veteran, SPY, tracks the S&P 500, offering broad exposure to the 500 largest US companies. Boasting the highest AUM at US$488.75 billion, it comes with a slightly higher expense ratio of 0.094%. Its 5-year return of 14.21% is noteworthy, but consider its heavier weightage towards larger companies.

iShares Core S&P 500 ETF (ASX: IVV)

IVV is a passive equity ETF by BlackRock and is the second-largest ETF in the world.

Another S&P 500 tracker, IVV shines with its ultra-low expense ratio of 0.03%. Established in 2000, has an AUM of US$433.42 billion and has delivered a 5-year return of 15.65%. Keep in mind the similar to sector allocation to SPY.

Vanguard S&P 500 ETF (NYSE: VOO)

While VOO is not traded on the ASX, it is accessible to Australian investors via some online brokerage platforms. It is still important to acknowledge its position as one of the largest global equity ETFs.

Tracking the S&P 500 with a 0.03% expense ratio, it holds US$404.97 billion in AUM. However, its 5-year return of 10.97% lags behind its peers and it allocates nearly 25% to the top 10 holdings.

Warren Buffett’s Berkshire Hathaway Owns 2 Index ETFs

A recent SEC 13F quarterly filing by conglomerate Berkshire Hathaway Inc. discloses that Berkshire owns a significant number of units in both the SPDR S&P 500 ETF Trust and Vanguard S&P 500 ETF.

While this may seem an anathema to some as Buffett is not a passive investor by any means and these ETFs are passive funds, Buffett has often espoused the benefits of low-cost index investing.

Beyond the headline

Remember, AUM reflects popularity, not necessarily outperformance or is appropriate for you. Here’s what else matters when considering large index-tracking ETFs:

  • Investment strategy: Understand the ETF’s underlying index and its methodology. Do they align with your investment goals? Passive versus active management?
  • Performance history: Analyse past returns and risk metrics to assess consistency and volatility.
  • Cost structure: Expense ratios directly impact your returns. Opt for lower costs unless specific features justify higher fees.
  • Liquidity: Ensure the ETF trades frequently to allow easy buying and selling.
  • Tax implications: Understand potential tax consequences, especially for international investments.

The takeaway

Don’t be swayed by size alone. AUM is important but consider your investment goals, risk tolerance levels, income and capital gain criteria, and investment horizon before selecting an ETF.

Research its strategy, performance, costs, and tax implications to make an informed decision. Remember, diversification is key.  Consider these giants alongside other asset classes to build a well-rounded portfolio.

Bonus tip

Explore other factors like currency hedging and ethical investing options to fine-tune your ETF choices.

Remember

This information is for educational purposes only and should not be considered financial advice. Please consult a qualified financial advisor before making any investment decisions.

JustStocks Advisor

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