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Keeping an Eye on the iShares Core S&P 500 ETF

PART:
1 2 3 4
Part 3
Keeping an Eye on the iShares Core S&P 500 ETF PART 3 OF 4

Why the iShares Core S&P 500 Performed Well in 2017

Election—the turnaround factor

The presidential election was a turnaround factor for the US economy. President Donald Trump’s victory brought with it expectations of a better economy and lighter regulations. The US stock market (IVV)(SPX-Index) has been surging higher since the elections, and with it the ETFs tracking the index.

The US stock market has delivered staggering returns this year in an environment of steady economic growth, an improving labor market, lighter regulations, and strong corporate earnings. Prospects still look better for US equities, as BlackRock stated in a recent article. According to a Factset report on October 20, for the companies that have reported earnings, the S&P 500’s earnings growth stands at 4.7% for 3Q17.

Why the iShares Core S&#038;P 500 Performed Well in 2017

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IVV outperforms slightly

The iShares Core S&P 500 ETF (IVV) has slightly outperformed not only the benchmark index but also other ETFs that track the index, though it is close. As of October 26, the iShares Core S&P 500 ETF (IVV) has risen 14.38% over the S&P 500 Index’s (SPX-Index) gain of 14.36% year-to-date. As we discussed in the previous part of this series, this rise is because the fund reinvests distributions back into the components of the S&P 500, which results in higher returns. The fund tracks the index pretty well while charging lower fees.

The SPDR S&P 500 ETF (SPY) has been in line with the benchmark index gain returning 14.36% while the Vanguard S&P 500 Index Fund ETF Class (VOO) lagged the index slightly.

Why the iShares Core S&#038;P 500 Performed Well in 2017

For the last three years, IVV’s correlation with the S&P 500 Index is 0.99, indicating how well the fund tracks the index. The fund also has a Sharpe ratio of 1.03. The Sharpe ratio is a standard measure of risk-adjusted returns. The higher the Sharpe ratio, the better the return per unit of risk.

Low portfolio turnover rate

For the period ending September 29, 2017, IVV’s portfolio turnover rate was 5% of the average value of its portfolio. A lower rate is advantageous for the fund’s performance. A higher portfolio turnover rate implies higher transaction costs, which could lead to higher taxes when the fund’s shares are held in a taxable account, hampering the fund’s overall returns.

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