VANGUARD S & P 500 ETF: Is it still a key portfolio?

that Vanguard S & P 500 ETF (flight 1.93%)) It has become the world’s largest ETF (ETF) earlier this year. SPDR S & P 500 ETF Trustea. Trace the performance of both funds S & P 500 (^GSPC 1.94%))However, the strong reputation as a VANGUARD index fund leader helped to promote the ETF at the top with a low cost ratio.

However, given the recent market volatility, some investors may wonder if the Vanguard ETF should still be a key possession. One of the claims for the Vanguard 500 ETF is that the S & P 500 index was too heavy in a large company. More than 30% of the stake is in the technology field, which does not even contain the following companies. Amazon and TeslaTechnically classified into other sectors. The S & P 500 is more concentrated on technology stocks and has been less diversified over time.

The following is a list of the best holdings and weights of ETF at the end of April.

Data Source: Vanguard.

If you look at the table, you can see that the top five locations of ETFs account for more than 26% of the ETF at the end of April, and all of them are chasing artificial intelligence (AI) ambitions. The same is true of three of the following five largest shares. For this reason, some market experts, including analysts Goldman SachsInvestors were encouraged to switch to the same weighted ETF.

One example of such an ETF is: InveSco S & P 500 The same weight ETF (RSP 1.77%))Each retention is less than 0.25%. Therefore, a single stock will not have a big impact on the fund. In addition, the ETF’s sector’s weight is greatly changed, significantly changing to 15.5%of the industry and 14.9%in finance. Technology ranks third with 13.4%.

Image Source: Getty Image.

Why Vanguard 500 ETF should continue to be a key holding

In other words, if you move away from the S & P 500 ETF as a core retention, it may not be the best way despite the fact that the index is more concentrated on technology stocks.

The reason why such a technology company occupies a big part of the index (and that ETF) is because it has become the largest company in the world due to success. They continue to innovate and grow, forming many worlds in the process. AI, on the other hand, is likely to be an opportunity for generations, and they are companies with means and resources to invest. Therefore, investors should not worry about the index weight of large technology companies.

The long -term success of the S & P 500 may be argued that it is a market weighty index. The larger the company’s market cap, the greater the ratio of the index. Meanwhile, low companies are small parts of the index. This mechanics is the core of the long -term performance of the S & P 500.

JP Morgan’s study shows that the success of the market over the years is generally led by a few “giant”. Investment banks have more than 40% of all shares between 1980 and 2020. Russell 3000 INDEX, which consists of 3,000 companies traded in the United States, experienced a 70% decrease and has not been completely recovered from it. In addition, more than 40% of the stocks were negative during this period, and two -thirds of the stocks were low.

Despite the weak profits of most individual stocks, indexes such as S & P 500 are still well performed because the winning stocks are still increasing. This is in contrast to what most professional investment managers do. They add more money to Laggards to take the position of the winner and to re -establish the portfolio. Many portfolio managers are struggling to surpass the S & P 500 index in the long run.

Individual investors can continue to see the Vanguard 500 ETF at the core. The ETF has produced a long performance of success, producing an average annual return of 12.3%over the past decade.

And at this point in which volatility increases, investors can use the dollar average strategy to secure their position in the ETF. Investing on a regular schedule, regardless of the price, can reduce the impact of the short -term market swing.