How to Invest in the S&P 500 in UK?

The S&P 500 is the world’s most renowned stock index. In this article, we will discuss its characteristics, composition, components, geographical distribution of its sales, distribution of its returns, and, most importantly, how to invest in it

 S&P 500 index

S&P 500 UK: Characteristics, Components, and Geographical Distribution

Characteristics of the S&P 500

The S&P 500 is a stock index that tracks the 500 largest companies in the United States. However, not all large-cap companies are included. To be part of the index, a company must meet several criteria:

  • Have a market capitalization exceeding $13 billion.
  • Be listed on a U.S. stock exchange and not on OTC markets.
  • Ensure that the majority of outstanding shares are held by public investors rather than insiders.
  • Be publicly traded for at least one year.
  • Report positive earnings for four consecutive quarters.
  • Have at least 50% of its fixed assets and sales within the United States.
  • Have a share price greater than $1.

Market capitalization is calculated by multiplying the share price by the number of outstanding shares. As of February 28, 2023, the S&P 500 had an average market capitalization of over $69 trillion USD

The index is rebalanced quarterly and is managed by S&P Global Inc.

The weight of each company in the index depends on its market capitalization. For instance, a company with a capitalization of $500 billion will have a weight 50 times greater than one with a capitalization of $50 billion. However, it is important to note that this weight calculation only considers the floating shares, excluding those held by insiders.

Components of the Index

Although it was created in 1957, post hoc reconstructions have been made to determine its performance over a broader historical range.

The S&P 500 evolves alongside the American economy, reflecting the changing importance of various sectors. For many years, until the 1990s, the industrial sector had the highest weight, followed by discretionary consumption and financials. However, since then, the industrial sector has fallen to fourth place, with the financial sector rising to first place, followed by discretionary consumption and technology.

This configuration persisted until the 2008 Global Financial Crisis, after which the technology sector gradually ascended to the leading position it holds today. Remarkably, technology climbed from near the bottom, where it was at the end of the 1960s, to the top.

Today, the top 50 positions in the index include the following top 10:

 CompanySector
1AppleInformation Technology
2Microsoft CorporationInformation Technology
3Amazon.comDiscretionary Consumption
4NvidiaInformation Technology
5Tesla IncDiscretionary Consumption
6Berkshire Hathaway Inc. Class BFinancial Services
7Alphabet Inc. Class ACommunication Services
8Alphabet Inc. Class CCommunication Services
9Exxon Mobil CorporationEnergy
10UnitedHealth Group IncorporatedHealth

👉 Guide to Invest in the Stock Market

The technology sector represents just over 27% of the index. These are the weights of each sector:

s and p 500 UK

Geographical Distribution of the S&P 500

As John Bogle said, if you invest in the S&P 500, you are also investing outside the United States. He mentioned this because most of the companies in the index have significant sales outside their home country.

While this is true and there is diversification by sales, there is still limited diversification by regions or sectors. This is because these international sales are concentrated in a few large American companies. For example, Exxon, Apple, Intel, and Amazon occupy the top positions, leading to a concentration of exposure in these companies.

The volatility of the SP500

The volatility of the S&P 500 index is measured using various indicators based on historical price data. The three main indicators for measuring its volatility are the Volatility Index (VIX), the Cross Correlation Coefficient (CC), and the Computed Price Movement Index (CPI).

One of the most important of these is the VIX, also known as the CBOE Volatility Index (Chicago Board Options Exchange). The VIX measures market expectations of volatility over the next 30 days. It is a crucial tool for investors, as it provides insights into anticipated market movements.

The VIX is calculated using a weighted average of the prices of put and call options, resulting in a numerical value that reflects the current state of the financial market. This value helps investors gauge market sentiment and potential future volatility

Distribution of S&P 500 Returns

The following graph shows the distribution of S&P 500 returns for annual ranges. This is useful for three main reasons:

  1. It helps us understand which returns are most likely.
  2. It highlights extreme positive and negative returns, indicating that these are uncommon and likely to revert to the mean over time.
  3. It shows that negative returns are fairly common, reminding us not to be alarmed when we encounter them.
how to invest in s&p 500

How to Invest in the S&P 500 in UK?

To invest in the S&P 500, we can use Indexed Investment Funds and Indexed ETFs. For those interested in speculating or employing trading or hedging strategies, futures contracts such as the E-mini and Micro E-mini, quoted on the CME, are also options. However, in this post, we will focus on the alternatives available with Funds and ETFs.

Here are the different options available:

Indexed Funds:

  1. In Dollars
  2. In Euros
  3. In Euros with Currency Hedging

Indexed ETFs:

  1. In Dollars
  2. In Euros
  3. In Euros with Currency Hedging
  4. Physical Replication
  5. Synthetic Replication
  6. Accumulation
  7. Distribution

Best indexed funds investing in S&P500

FundISINTERIndex
Amundi Index S&P 500 – AE (C)LU09961790070,30%S&P 500
Pictet-USA Index-R EURLU0474966240,75%S&P 500
Amundi Index MSCI North America – AE (C)LU03898123470,30%MSCI North America
Vanguard U.S. 500 Stock Index Fund EUR AccIE00321266450,10%S&P 500
Fidelity S&P 500 Index Fund P-ACC-EURIE00BYX5MX670,06%S&P 500
S&P500 Equiponderado Equal Weight IndexES01652420010,30%S&P500 Equal Weight Index

Best ETFs Investing in S&P500

FundISINTERDividendCurrency
Lyxor Core Morningstar US (DR) UCITSLU17815409570,04%DistEur
JPMorgan BetaBuilders US Equity UCITS ETFIE00BJK9H7530,04%AccEur
Amundi Prime USA UCITS ETF DRLU20892384680,05%AccEur
iShares Core S&P 500 UCITS ETFIE00B5BMR0870,07%AccEur
Xtrackers MSCI USA Index UCITS ETFIE00BJ0KDR000,07%AccEur
Vanguard S&P 500 UCITS ETFIE00BFMXXD540,07%AccEur
Vanguard FTSE North America UCITS ETFIE00BK5BQW100,10%AccEur
SPDR Russell 2000 US Small Cap UCITS ETFIE00BJ38QD840,30%AccEur
Xtrackers Russell 2000 UCITS ETFIE00BJZ2DD790,30%AccEur
iShares MSCI USA Small Cap UCITS ETFIE00B3VWM0980,43%AccEur

👉 How to Choose the Right ETF: Guide for UK Investors

Interactive Brokers

If you want to invest in the S&P 500, the first step is choosing the right broker. Interactive Brokers is one of the most popular options available. Notably, this broker offers a zero-commission ETF program, allowing you to invest in over 150 ETFs without any commission fees.

In addition to its zero-commission ETF program, Interactive Brokers is a regulated and trustworthy broker. It also provides opportunities to diversify your portfolio with a wide range of assets, including stocks, forex, mutual funds, bonds, options, and more

Investing in the S&P 500 in UK: Conclusion

It is always important to consider having exposure to this index since the American economy is not only the largest, but the market capitalization of its stock market and the global reach of its companies have no parallel at the moment. However, it cannot be our only exposure.

Indexed investment at your reach:

FAQs about investing in the S&P 500

What are the average returns of the S&P 500?

The average annual return of the S&P 500 over the past 100 years is about 10%. However, the returns of the index can vary significantly from year to year.

What are the top 3 sectors in the S&P 500?

The top 3 sectors in the S&P 500 are information technology, financials, and consumer discretionary. These sectors account for over 60% of the index’s weight.

How can I invest in the S&P 500?

There are a few ways to invest in the S&P 500. You can buy shares of an index fund or ETF that tracks the index. You can also buy individual stocks that are included in the index.

Related Articles

Best Junior ISAs
In this article, we'll explore Junior ISAs, explain what they are and how they work, and analyse the best options on the market. Junior ISAs offer a tax-efficient way to save for your child's future. We'll break down the different types and the co...