How to invest in the S&P 500 index from Hong Kong

"Don't look for the needle in the haystack. Just buy the haystack!"
— Jack Bogle, founder of Vanguard

What is the S&P 500 index?

Apple, Amazon, Google — these are famous American brands that we as consumers are all too familiar with. But as investors, our aspiration goes further, we want to participate and profit off their growth as leaders in their industries. 

Then came the idea of index investing. The first index fund was first available to individual investors in 1976 through Vanguard. Jack Bogle, Vanguard's founder launched the fund based on research by Nobel Laureates including John McQuown, who later co-founded Dimensional Fund Advisors with David Booth, which showed that actively picking stocks does not consistently beat the market. It is better to just invest in the broad markets.

Fast forward forty years later, passive index investing represents one of the fastest growing segments in the investment industry today. S&P 500, argubly one of the most well-known index represents stock performance of the top 500 companies in the US. (S&P is short for the index constructor Standard and Poor’s.)

The S&P 500 index represents some US$40 trillion in market value of these 500 top firms. 

Looking at historical data, the index's return on a particular year could show considerable variability, however over the long-run, the average historical returns of the S&P 500 stands at 10.5% in the last 30 years.

Investing in the S&P 500 from Hong Kong

The easiest way for a retail investor to “buy the index” would be through an S&P 500 exchange-traded fund (ETF) or a mutual fund (also called a unit trust). However, these options come with various fees and cost considerations. Let’s break them down.

1. Investing in S&P 500 through US-listed ETFs

Options for investing in the S&P 500 include US-listed ETFs, such as those with the ticker VOO, IVV and SPY. Their main advantages are high liquidity, and low fees. Many low-cost brokerages also offer zero commissions for trades into the US markets.

But as a Hong Kong-based investor with no US tax treaty, do note that there is a dividend withholding tax of 30% levied at the fund level for US-listed ETFs.

Foreign investors investing in US-listed securities — such as US-listed ETFs — also have to watch for estate taxes. Once your investment holdings exceed US$60,000, you will be charged up to 40% on most of your holdings. 

Read more: An inconvenient truth: Taxes on US-listed ETFs

2. Investing in S&P 500 through mutual funds/unit trusts

On the other hand, investing in a HKD-denominated mutual fund that tracks the S&P 500 (also called unit trust) does not incur estate tax liability, does not require currency conversion, and can automatically reinvest the dividends from the underlying stocks into the mutual fund.

With some of these funds, the headline fee may appear to be higher, but Endowus rebates distributor commissions known as trailer fees to our clients, or help you get access to institutional share class funds with no embedded commissions to bring your total cost of investing down.

More importantly, it does not include the other forex and estate tax-related costs associated with investing in US-listed ETFs that may not be so obvious at first glance.

A low-cost HKD denominated unit trust that tracks the S&P 500 Index is the HSBC ICAV US Equity Index Fund that has a fund-level fee of 0.31%.

As part of HSBC’s well-established passive management platform with over 30 years of experience, the Fund enables Hong Kong-based investors to gain efficient exposure to the S&P 500 Index. The Fund adds further value through its ESG-based exclusions to not invest in companies that are involved in banned weapons.

Correlation between HSBC AM US Equity Index Fund and main US indices

High correlation with major US equity market indices

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A high correlation between the HSBC AM US Equity Index Fund and main US indices ensures that the fund's returns closely mirror the movements of the indices, offering low tracking error.  

Invest in index funds easily through Endowus Hong Kong

A simple way to invest in index funds is through the Endowus Fund Smart platform — you can buy a single fund or customise your ideal portfolio with multiple funds in just a few minutes.

Besides the S&P 500 Index, you can also invest in other global indices such as the MSCI World Index through the HSBC ICAV Global Equity Index Fund or the Bloomberg Global Aggregate Bond Index through the HSBC ICAV Global Aggregate Bond UCITS ETF Fund.

When you invest in a single fund, you will pay an all-in Endowus Fee of 0.4% per annum to Endowus, as well as the fund-level fee, net of all the trailer fee rebate Endowus returns as Cashback. Find out more about our transparent pricing here.

We offer an additional suite of even lower cost index funds for our Professional Investors clients, such as the Blackrock iShares US Index strategy which also tracks the S&P 500 index at a total expense ratio of only 0.08%.

Final checklist: beware of S&P 500 concentration and the lost decade of the 2000s

While the S&P 500 has shown strong performance in the past 2 years. That said, for investors looking to grow long-term core wealth, there are also considerations to simply choose to invest in S&P 500 as their core portfolio.

1. S&P 500 concentration

The appeal of index investing is to often to reap the benefits of diversification. However, with the strong outperformance of the Magnificent 7 and mega-cap tech stocks, S&P 500 concentration is now at multi-decade highs. The top 10 stocks alone represent 38.7% of S&P 500 as of 31 December 2024.

2. Short-term return variability and the S&P 500 Lost Decade of the 2000s

S&P 500's yearly returns can also show considerable variability and volatility. Data showed that the worst historical 12-month return in recent history (from June 2004 to May 2024) is minus 43.75%. The worst drawdown assumed a starting investment in March 2008, during the Global Financial Crisis, through February 2009.

S&P 500 may also underperform more global portfolios over certain periods. Between 2000 and 2009, the S&P 500 total return was negative during the period, returning only -9.1%, compared to the MSCI Emerging Market Index of 162%. Some have called this period of 2000 to 2009 "The Lost Decade" for the S&P 500.

To further diversify your investment portfolio beyond just the S&P 500, consider investing in index funds that have a mandate to replicate all the developed markets or even the MSCI All Country World Index. Endowus uses Dimensional funds to construct our core one-stop solution Flagship Portfolios, giving our clients global exposure to more than 10,000 companies for your core wealth accumulation goals.

While investors with a lower risk appetite and shorter-term investment objective will need to look at a more risk-appropriate portfolio. 

Read more:

• S&P 500 reaches a new all-time high. What’s next?
• An inconvenient truth: Taxes on US-listed ETFs
• Introducing Endowus Flagship Portfolios: a core strategy for your financial goals

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