The Vanguard S&P 500 UCITS ETF (LSE: VUSA) is quite a popular investment in the UK. With this tracker fund, investors can get one-click access to a broad range of US stocks. I think it’s smart to have plenty of exposure to the US stock market as, historically, it has outperformed the UK market. But should I buy VUSA stock for my portfolio? Let’s take a look.
What is VUSA?
VUSA is an exchange-traded fund (ETF) that tracks the S&P 500 index. This index consists of 500 large companies listed on stock exchanges in the US.
At present, the top 10 holdings in the S&P 500 are:
Alphabet Class A
Alphabet Class C
Johnson & Johnson
Advantages of the fund
There are a number of things I like about VUSA. Firstly, it provides access to many world-class companies. With this ETF, I can get exposure to the likes of Apple, Amazon, and Alphabet (Google). These are some of the most dominant companies in the world. On the London Stock Exchange, we don’t have huge companies like this.
It also provides great exposure to the technology sector. At the end of October, tech represented about 26% of the S&P 500 index (versus 0.9% for the FTSE 100). As a long-term investor, this is a sector I want to have plenty of exposure to, as the world is only going to become more digital.
Additionally, it provides diversified exposure to the US market at a low cost. As an ETF, VUSA trades just like a regular stock. So the only fees I’ll pay to buy and own it are my standard brokerage fees (trading fees and custody fees). This means it will most likely be more cost effective than owning a non-ETF index fund or an actively-managed fund.
Finally, I also like the fact that as an ETF, its price changes during market hours (versus actively-managed funds which typically are only priced once a day). This feature could allow me to be nimble when it comes to buying and selling my units. For example, the S&P 500 recently fell to near-3,500 before ripping back up above 3,650 that same day. If I’d been on my toes, I could have got in near the 3,500 mark with VUSA. I couldn’t have done that with an actively-managed fund.
Of course, VUSA has its disadvantages too. Buying a broad ETF like this doesn’t give me any control over the stocks I’m buying. I’m forced to own all the stocks within the S&P 500. So for example, if I want to avoid oil stocks like Chevron, I can’t. I like picking individual stocks myself as it gives me more flexibility.
Secondly, the S&P 500’s heavy allocation to technology means this ETF could be quite volatile. We’ve seen this in 2022. This year, VUSA has had some wild swings.
Should I buy VUSA stock?
So would I buy VUSA stock today? Well, the thing is I already own shares of Apple, Amazon, Microsoft, Alphabet, and a number of other US-listed companies. So if I invested in VUSA, there would be a fair bit of overlap.
So, for now, I won’t be buying it. However, if starting an investment portfolio from scratch today, I would definitely consider it. I think it could be a good core holding.
Ed Sheldon has positions in Alphabet (C shares), Amazon, Apple, and Microsoft. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, and Tesla. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022