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Highlights:
S&P 500 Index drops to its lowest level in a year, nearing a bear market threshold
Equal-weighted ETFs have shown relative resilience compared to capitalisation-weighted counterparts
Currency hedging remains a key variable with the Australian dollar trading below key levels
The benchmark S&P 500 Index (SP: .INX), tracking the largest listed companies in the United States, has reached its lowest level in over a year following a sustained period of volatility. This broad-market index, often viewed as a measure of large-cap performance, continues to decline after peaking earlier this calendar year. The sharp retreat has placed the index on the edge of what is commonly defined as a prolonged downturn, with a sharp drop from previous highs.
For those examining global equity exposure through the Australian Securities Exchange, several local exchange-traded funds (ETFs) provide access to this basket of American blue-chip companies. However, differences in index methodology and currency approach can significantly alter outcomes depending on market trends.
Capitalisation-Weighted vs Equal-Weighted Strategies
The iShares S&P 500 ETF (ASX:IVV) adopts a capitalisation-weighted strategy, meaning companies with larger market values exert more influence over the fund’s performance. Major constituents include Apple Inc, Microsoft Corp, Nvidia Corp, Amazon.com Inc, and Meta Platforms Inc. These companies represent a substantial portion of the overall index and can drive movement in either direction when facing earnings pressures or valuation adjustments.
By contrast, the BetaShares S&P 500 Equal Weight ETF (ASX:QUS) maintains an even distribution across all companies. Each firm in the index contributes equally, irrespective of its market size. This structure can reduce concentration risk and offers a more diversified exposure. The fund is adjusted quarterly to preserve this balance.
Recent performance trends reveal a shift. The largest technology names, previously strong performers, have faced sharper declines this year. This dynamic has seen equal-weighted ETFs like QUS deliver relatively smaller losses compared to their capitalisation-weighted counterparts such as IVV.
Currency Exposure and Hedging Considerations
A significant distinction between available ASX-listed ETFs lies in their approach to currency exposure. The iShares S&P 500 (AUD Hedged) ETF (ASX:IHVV) includes currency hedging to reduce the effect of foreign exchange movements between the US dollar and the Australian dollar. With the local currency now trading below key long-term levels not seen since global events several years ago, currency impact has become a central factor in ETF performance.
Despite broad market trends, the hedged version has experienced greater downside movement relative to unhedged products. Should the local currency appreciate in the future, ETFs like IHVV could display different performance outcomes compared to unhedged alternatives.
Performance Variations Within the S&P 500
Performance across the broader S&P 500 Index has been uneven, particularly within the technology sector. Larger firms such as Apple and Tesla have experienced notable declines, contributing significantly to overall index weakness. This has further impacted capitalisation-weighted ETFs more heavily, while equally weighted approaches have seen narrower drawdowns.
Within the ASX 200, exposure to US equities through diversified products like QUS, IVV, or IHVV can differ markedly depending on sector trends, index weighting, and exchange rates. The choice between hedged and unhedged strategies, along with the index methodology, continues to shape outcomes for those tracking international equity segments through domestic vehicles.
