- There are three funds on the Endowus platform that provide exposure to leading US stocks: BlackRock’s iShares US Index Fund, Amundi Prime USA Fund, and LionGlobal Infinity US 500 Stock Index Fund.
- CPF Ordinary Account monies can be invested into the Amundi Prime USA Fund, while Cash or SRS savings can be invested into the BlackRock iShares US Index Fund.
- Buying into the S&P 500 alone excludes exposure to non-US firms, small-cap companies, and bonds. The Endowus Flagship Portfolio, as a core investment, provides diversified exposure, while these US-focused funds provide narrower/tactical exposure.
Which S&P 500 fund should I pick for exposure to top US stocks?
With the S&P 500 gaining about 18.1% (in USD terms) since the start of the year (as of 14 Aug 2023), Singapore investors may be wondering if they should invest in mega-cap and large-cap names in the US, and how best to do so through Endowus.
There are three ways investors in Singapore can get exposure to leading US stocks through the Endowus platform. This year, Endowus launched two such low-cost index funds: 1) BlackRock’s iShares US Index Fund that tracks the S&P 500 index, and 2) the Amundi Prime USA Fund that tracks the Solactive GBS United States Large & Mid Cap Index. There is also a third and older option, the LionGlobal Infinity (LGI) US 500 Stock Index Fund.
How should investors consider the two latest additions, and figure out how they stack up against the third option, which also tracks the S&P 500 index?
In this article, we explain simply some of the factors that should guide your decision. We also look at how investing in the S&P 500 (or major US stocks) through a single fund differs from getting exposure via the Endowus Flagship Portfolio.
Why should I buy into the S&P 500 or leading US stocks via Endowus?
Apple, Amazon, Google — these are well-known American brands that we as consumers are all too familiar with. But as investors, our aspiration goes beyond being their customers. We want to participate and profit off their growth as leaders in their industries.
A country’s stock market enables us to participate in the profits and future growth of various businesses in each respective country by buying the companies’ shares. In the case of the US, it means getting exposure to the world’s largest stock market by market value.
These businesses can be owned by the public, because they permit fractions of their business — known as a share — to be bought and sold through a marketplace by being listed. In this marketplace, the prices of these shares are impacted by how actively traded the shares are, the daily demand and supply for these shares, as well as the valuation of each company’s business or businesses (for a conglomerate).
Now the issue is, it can be expensive and operationally challenging for most investors to buy the shares of each listed company in a country. There are thousands of companies listed on two major US stock exchanges, NYSE and Nasdaq, alone.
In the 1960s, a pair of researchers came up with the idea of investing in an index to get average returns of all the listed companies in a country or a particular segment of the country’s stock market. One such index is the S&P 500 — it is built by combining the representative 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 more than US$30 trillion in market value of these 500 top firms as of 30 June 2023.
These are usually large, stable companies that are leaders in their industries, with shares that are actively traded. They include well-known names such as Apple, Amazon, Alphabet (Google), Microsoft, Meta (Facebook), and Tesla. The larger and more actively traded these companies are, the higher their represented portions would be in this market index.
The methodology to determine how much a company’s share price should be reflected in an index, such as the S&P 500 index, is known as weighting. The weighting of the index is regularly reviewed to ensure that it remains representative of the large companies listed on the US stock exchanges. This means that buying a fund that tracks the S&P 500, you are buying units of the fund that are invested in a representative benchmark of big American brands — with these US corporate giants trading at a combined valuation of trillions of dollars.
How should I buy into the S&P 500 or leading US stocks via Endowus?
At Endowus, there are three options to consider:
- The BlackRock iShares US Index Fund tracks the S&P 500 index in a low-cost way, replicating the index by using S&P 500 futures contracts, which means that there will be no US dividend withholding tax.
- The Amundi Prime USA Fund tracks the performance of the Solactive GBS United States Large & Mid Cap Index in a low-cost way. The index covers the performance of the large and mid cap segment of the United States equity market and closely tracks the performance of the S&P 500 Index.
- The LionGlobal Infinity US 500 Stock Index Fund tracks the S&P 500 index by wrapping — or essentially, packaging — the Vanguard U.S. 500 Stock Index Fund, which is not independently accessible to Singapore investors.
Below is a snapshot of the funds that track the S&P 500 index or provide exposure to major US stocks, as well as their total expense ratios (TER), or fund-level fees, which is charged by the fund manager.
In deciding which of the three funds to invest in, investors may need to consider your source of investment — Cash, SRS, or CPF savings. For instance, you may wish to invest your CPF Ordinary Account (OA) monies in the Amundi Prime USA Fund, while investing your Cash or SRS monies in the BlackRock iShares US Index Fund.
A snapshot of index funds that track US equity indices:
We also answer some common questions that may guide your decision:
What is the Solactive index that is tracked by Amundi Prime USA Fund? How similar is it to the S&P 500?
The Amundi Prime USA Fund tracks the Solactive GBS United States Large & Mid Cap Index, which covers about 85% of the US equity market's free-float market capitalisation with around 530 constituents.
The Solactive index has shown a remarkably close correlation to the S&P 500. From January 2007 to June 2022, the correlation of returns between the two indices was 0.999, indicating an almost perfect positive correlation.
This means that the returns of both indices move together by nearly the exact same percentage and direction. For example, if the S&P 500 returns +1% this month, there is a very high chance that the Solactive Index will also gain +1%.
What are index funds — or passive funds — and what are their benefits?
Index funds, also known as passive funds, mimic the performance and holdings of a specific market index, such as the S&P 500.
For example, if you invest in an index fund that tracks the S&P 500 index, you can expect the fund to invest in stocks that are included in the S&P 500. You can also expect the fund to perform similarly to the S&P 500. Passive funds tend to be cheaper than active funds, and have the tendency of outperforming most active funds. Check out this article to explore the benefits of passive investing for you.
What is the difference between “physical replication”, “synthetic replication”, and “wrapper”?
There are a few ways that an index fund can match its holdings with those of the benchmark index. For example, the Amundi Prime USA Fund uses the physical replication method, while the BlackRock iShares US Index Fund uses synthetic replication.
- Physical replication (Amundi fund): Invests directly in the actual stocks of the index.
- Synthetic replication (BlackRock iShares fund): Uses derivative contracts to mirror index performance.
- Wrapper (LGI fund): Adopts an existing index fund; in this instance, the LGI fund packages the Vanguard U.S. 500 Stock Index Fund in order to offer it to retail investors in Singapore.
As the Amundi fund has a lower net TER, why should we look at the BlackRock iShares US Index Fund for Cash/SRS investing?
The Amundi Prime USA Fund is indeed also available for Cash and SRS investments. On the face of it, the Amundi fund appears more cost-effective at the fund-level expense or TER level. Nevertheless, it's crucial to acknowledge that the Amundi fund is subject to dividend withholding tax because of its physical replication approach, unlike the BlackRock iShares US Index Fund.
Using a reasonable US equity dividend yield of 1.5% and factoring in the 30% dividend withholding tax, the BlackRock iShares fund could emerge as a slightly more economical choice compared to the Amundi fund, albeit with only a minor difference in basis points.
Who are Amundi and BlackRock?
Headquartered in France, Amundi Asset Management is Europe's largest asset manager, managing more than US$2 trillion as of end-December 2022. Learn more about Amundi here.
iShares is the index franchise of BlackRock, the world's largest asset manager that managed more than US$8.5 trillion as of December 2022. iShares is a prominent figure in the global exchange-traded funds (ETFs) and index funds industry. For more details, explore this page.
How does investing in an S&P 500 index fund differ from investing in the Endowus Flagship Portfolio?
While the US market is the largest in the world by value, buying into the S&P 500 alone means missing out on non-US/global exposure, such as to Asia or emerging markets. The S&P 500 also represents the 500 largest firms listed in the US, so investors that only pick exposure to the S&P 500 would miss out on exposure to small-cap companies listed in the US.
The Endowus Flagship Portfolio is designed to give investors broad exposure to tens of thousands of companies with different market capitalisations that are listed on various global markets, providing the benefit of geographical and sectoral diversification.
The Flagship Portfolio can also be tailored to include exposure to bonds, so you can diversify your asset allocation beyond stocks. Find out more about the benefits of diversification here.
To learn more about why you should invest in our Flagship Portfolio too, click here.
Get started with Endowus
A simple way to invest your Cash, CPF, or SRS 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. When you invest in a single fund, you will pay an all-in Endowus Fee of 0.3% per annum to Endowus, as well as the TER or fund-level fee to the fund manager, after any Cashback on trailer fees. Find out more about our transparent pricing here.
You may also learn more about how to invest in our Flagship Portfolios.
With digital wealth platform Endowus, you can plan and manage your money — by investing in best-in-class funds and globally diversified, intelligent, low-cost funds and portfolios seamlessly. Click here to get started with your investing journey with Endowus today.