Financial Insights That Matter
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One of the most impressive exchange-traded fund (ETF) performances over the past decade has been the iShares S&P 500 ETF (ASX: IVV), in my opinion.
In the decade to 31 January 2025, the IVV ETF has returned an average of 16.1% per year. Few ASX ETFs have done as well for as long as this fund has. Meaning long-term investors can be very happy.
The returns have been helped by both the extremely low annual management fee of just 0.04% and the excellent gross returns. To explain the storming returns, let’s remind ourselves of what the IVV ETF is invested in.
America’s great businesses
This portfolio includes the largest and most profitable businesses listed in the US. Its holdings come from both the NASDAQ and the New York Stock Exchange.
Many of the world’s strongest businesses can be found in the US. Those companies have delivered enormous returns in the last year (and the past decade). Look how some of its biggest holdings have performed in the last 12 months:
The Apple share price has risen by 24%.
The Nvidia share price has gone up by 84%.
The Meta Platforms share price has climbed by 53%.
The Alphabet share price has gone up by 26%.
The Amazon share price has risen by 35%.
The Tesla share price has jumped by 75%.
It has been a great period for these businesses.
When we think of how our lives are directly or indirectly changing, these are some of the businesses at the forefront of those changes and delivering higher earnings over time because of it. Whether it’s global cloud computing growth, electric/automated vehicles, e-commerce, online video, AI, or so on, we can get exposure to those themes through the businesses in the IVV ETF.
It’s understandable why the ASX ETF has done so well – the US economy has performed well, and these global businesses have made incredible investments.
Is the IVV ETF still a buy at this high valuation?
At the end of January 2025, the IVV ETF had a price-earnings (P/E) ratio of just over 29x. That’s an incredibly high valuation for a fund as diversified as the IVV ETF – the portfolio has 500 holdings from a variety of sectors.
If the businesses’ underlying earnings keep rising, then I’d expect the share prices to go up over time, too. However, if the share price rises faster than earnings, the valuation becomes increasingly unsustainable.
Valuation itself can be a risk if it goes too high. I’m not expecting the next three years of returns to be as good as the last three years simply because of how large the returns have been and today’s high starting valuation.
Today’s valuation is important, but the question is, where will it be in three years or five years? I think it’s going to be higher, even if there’s some volatility along the way.
I wouldn’t call it a brilliant buy today, but I’d suggest it still has a good future ahead, so I’d still be willing to buy IVV ETF units.
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