VUSA shares: why I’d buy this ETF today

Share on Vanguard S&P 500 UCITS ETF (LSE: VUSA) recently, as the US market has sold off. VUSA’s stock price is now down more than 10% from last year’s high.

I’m very happy that these low-cost exchange-traded funds (ETFs) have been around for a long time, as I’ve been looking to add them to my portfolio on the cheap. Let me explain why I am interested in buying.

VUSA tracks the US S&P 500 index, which is approximately equal to FTSE 100 here in the UK. The S&P 500 contains many of the largest and most successful businesses in the US. At the time of writing, the largest members of the index include:

• Apple
• Microsoft
• Amazon
• Berkshire Hathaway (The Warren Buffett Company)
• Alphabet (owned by Google)
• Exxon Mobil
• JPMorgan Chase & Co
• NVIDIA
• visa

You will probably recognize most of these names. One big difference to the UK’s FTSE 100 is that this list is not dominated by banks, oil companies, and miners. However, it includes a wider mix of businesses. I think it helps to diversify the portfolio.

Diversification: I want more

As a keen stock picker, I already have an individual UK stock portfolio. I would say that my investments are quite diversified, but some large sectors of the world economy just disappear.

This is a big reason why I’m considering adding the VUSA ETF to my portfolio. By buying a single, UK-listed stock, I can invest in 500 of the largest and most successful companies in the US.

This will give me exposure to long-term growth sectors such as technology and payments. It is not well represented in the UK stock market.

I can buy US stocks directly instead of ETFs, but I do not have the same level of knowledge of the US market as in the UK, where I have followed many companies in detail for years.

By buying VUSA shares, I can benefit from exposure to future US growth at a low cost, without the risk of picking individual companies.

What is the right time to buy?

Some of the big US tech stocks have taken a tumble. But I still think there is a risk that the S&P 500 could go lower again.

According to Vanguard, VUSA is currently trading at 19 times forecast earnings, with a 1.4% dividend yield. This doesn’t seem all that cheap to me, although dividend yields are generally lower in the US.

One other risk worth mentioning is the exchange rate. Shares held in VUSA are valued in US dollars. But the ETF shares themselves are priced in pounds.

Last year, that exchange rate change meant that VUSA outperformed the S&P 500. This year may be different. There is no way to be sure.

The future is certainly uncertain, but I would be happy to buy some VUSA stock at current levels and hold it for 10 years. I’m pretty sure they’ll do well in the long run.

As Warren Buffett said in 2021, “Don’t fight America”.