Should I add the VUSA ETF to my Stocks and Shares ISA?

My Stocks and Shares ISA is entirely invested in companies listed in the London Stock Exchange. Although they are from different industries and sectors, and some earn global revenue, my ISA portfolio suffers from home country bias. To solve this problem, I can invest in stocks listed on exchanges in other parts of the world. For starters, how about investing in companies from the world’s largest economy, the US?

There are problems when investing in US stocks in an ISA, or foreign stocks. But luckily there is a way to overcome this problem and make it a simple endeavor.

VUSA ETF

I can buy and sell Vanguard S&P 500 ETF (LSE: VUSA) inside my ISA like any other UK-listed. It passively tracks US S&P 500 index. What this means is that if I buy VUSA and the S&P 500 goes up, so does the value of my VUSA holdings. Also, if the S&P 500 goes down, my VUSA position will lose money.

Currently, VUSA’s stock price will not track the percentage gains or losses in the S&P 500 exactly. This is because the VUSA ETF manager takes an ongoing fee of 0.07% as a management fee that reduces returns, and tracking may not be perfect.

A VUSA manager must create a portfolio of 504 US stocks in the S&P 500 in the correct proportions to track. This is not immediate, as the proportions change every minute. That’s why the tracking may not be perfect, and also why they charge a management fee. And speaking of management fees, VUSA is reasonable: it’s not the highest S&P 500 tracker option, nor the lowest. And it tracks the S&P 500 with a fairly small margin of error.

Track the S&P 500

So why does tracking the S&P 500 help with different Stocks and Shares ISAs? Well, as already mentioned, it provides me with stock trading in another country’s stock exchange, which is the US. I will increase my focus on the US economy, and switch from the UK.

As I have often lamented, the UK market, and especially the FTSE 100 index, short for big tech names – in fact, tech in general. This industry has a weight of 2.3% by market value on Footsie. The S&P 500, by contrast, is heavily weighted towards technology, with 26% in December 2022. The S&P 500 P/E ratio is around 20. The FTSE All-Share Index has a P/E ratio of 12. So tracking the US Indices will also add exposure to stocks growth.

Although technology stocks, and growth stocks in general, have been hard of late, they previously had excellent results. I want exposure for them moving forward.

A diversified Stocks and Shares ISA

Although my Stocks and Shares ISA consists of all stocks listed in the UK, my SIPP portfolio is exposed to stocks from around the world, as well as other assets. I like a diversified investment portfolio as a whole. However, if I only had my ISA, I would consider adding VUSA to diversify away from the UK, and get exposure to the US big tech growth.