It is a daunting task to pick the ultimate S&P 500 fund. The S&P 500 index has proven since its inception in 1957, formerly the composite index, as the best gauge for the health of the US economy. It then comes as no surprise that most funds track the S&P 500 index, exposing investors to the largest and best publicly traded US equities.
For this reason, we look into the Fidelity SP 500 fund, which is among the cheapest S&P 500 funds available to investors.
Why it pays to invest in the Fidelity SP 500 fund
To understand why the Fidelity SP 500 fund is an earnings solution in 2022, we first understand what this fund entails. The Fidelity SP 500 Fund, FXAIX, was launched on 4th May 2011, exposing investors to 80% of the US investable equity market by tracking the S&P 500 index. It pools together 509 common stocks publicly traded in the US. However, exposure to all economic sectors coupled with pretty even weighting results in a fund that offers investors:
- Consistent returns
- Risks mitigation
The initial investment capital requirements for a diversified equity portfolio of the best and largest blue-chip companies are, frankly speaking, quite high. Couple this with the effort needed to track these 500 equities, and you might need an investment manager who is not cheap. Rather than deal with all of this, investors have an option in the FXAIX fund. Investing in this fund gains investors exposure to 509 of the largest US blue-chip companies and, as a result, instant diversified play on the entire US economy-80% of the US investable equity market.
The underlying holdings are equities over the $10 billion market capitalization threshold, providing stability and the capital base to weather market downturns.
Due to their relatively lower cost than other investment instruments, exchange-traded products have become so popular, ease of investment aside. The Fidelity SP 500 Fund has an expense ratio of 0.015%. Compared to the SPY ETF, whose expense ratio stands at 0.09%, a $10000 investment in the FXAIX saves you $7.5 annually. This cost-saving adds to a portfolio’s bottom line with a considerable investment.
Since its inception in 2011, investors in the FXAIX have enjoyed average annualized returns to the tune of +14.62%, a $10000 investment at its inception would now be worth $44083 today. Add an annual dividend yield of 1.28% and quarterly dividends of $2.33 to the share to provide for a fund that grows your money over the long term while providing regular income in the interim.
|Period||FXAIX||Category average||Segment average|
|1 month return||-2.99%||-2.52%||-2.99%|
|3 month return||-3.9%||-3.47%||-3.89%|
|1 year return||28.69%||26.07%||26.44%|
|3 year return||18.91%||17.37%||15.99%|
|5 year return||15.98%||14.39%||32.14%|
A look at the table above shows that not only has FXAIX fund provided investors with consistent and above-average returns on their investment over the last half a decade, but it has also been outperforming both its category and segment averages.
Unlike other S&P 500 based funds, the FXAIX fund is evenly distributed weight-wise, with the top ten holdings accounting for just 21% of the total fund weight. Couple this with exposure to the entire US economy, and what you have is a fund that mitigates against concentration risk; like all other S&P 500 funds, it’s skewed towards the tech field, 33.90%. In addition, this fund has one of the lowest risk ratings among the large blend equity funds.
Is there a downside to buying the FXAIX fund?
Despite their many advantages, exchange-traded products are not immune to the volatilities exhibited in the equity markets. In addition, the skewness towards the tech segment means that a downturn in this segment might lead to significant fund growth deceleration.
The FXAIX fund is one of the most extensive exchange-traded products globally, boasting $380.7 billion in assets under management. Couple this with a dividend yield of 1.28% and a relatively low expense ratio of 0.015%.
Fidelity Investment has a fund to grow portfolio value for investors while providing regular and consistent income. In the current turbulent times, investors need highly diversified, low-cost, and low turnover investment options to ensure resilience in times of market downturn and a chance at returns. With a MorningStar rating of five stars, FXAIX is the exchange-traded product to provide all of these in 2022.