Schwab S&P 500 Index Fund: Where Your Money Goes

The Schwab S&P 500 Index Fund is a mutual fund that aims to track the total return of the S&P 500 Index, one of the most widely watched benchmarks for U.S. stocks. The fund seeks to replicate the performance of the index by investing in a diversified portfolio of 500 leading U.S. companies, capturing approximately 80% of the available U.S. market capitalization. The fund's largest holdings include well-known companies such as Apple Inc., Microsoft Corp., and Exxon Mobil Corp. With an ultralow expense ratio of 0.02% to 0.03%, the Schwab S&P 500 Index Fund offers investors a straightforward and low-cost way to access a diverse range of U.S. stocks.

The fund's goal

The goal of the Schwab S&P 500 Index Fund is to track the total return of the S&P 500 Index. The fund seeks to replicate the performance of the index by investing at least 80% of its net assets in the stocks included in the S&P 500. This means that the fund's holdings are weighted in the same way as the index. As of November 2023, the fund had assets totalling almost $73.90 billion invested in 504 different holdings.

The fund is designed to be a straightforward, low-cost investment option with no minimum investment requirement. It provides investors with simple access to 500 leading U.S. companies, capturing approximately 80% coverage of the available U.S. market capitalization. This includes well-known companies such as Apple Inc., Microsoft Corp., Exxon Mobil Corp., Johnson & Johnson, and JPMorgan Chase & Co.

The fund falls into Morningstar's large-blend category and is considered a core large-cap holding in a portfolio. It has been managed by veteran fund managers Agnes Hong, Ferian Juwono, and David Rios since 2012, 2013, and 2015, respectively.

The fund's expense ratio is ultralow at 0.02% to 0.03%, making it the lowest currently available for an S&P 500 fund. The risk associated with the fund is tied to the S&P 500 and the U.S. stock market. However, Morningstar considers the fund's risk to be average compared to other funds in the large-blend peer group for the trailing three-year period.

Top holdings

The Schwab S&P 500 Index Fund is a mutual fund that tracks the Standard & Poor's 500 index, a widely watched benchmark for U.S. stocks. The fund's goal is to replicate the performance and total return of the S&P 500 Index by investing in the same stocks and giving them the same weight in the portfolio. As of November 27, 2023, the fund had assets totaling almost $73.90 billion invested in 504 different holdings.

The fund's largest holdings are the same as those of the index and include well-known U.S. companies such as Apple Inc., Microsoft Corp., Exxon Mobil Corp., Johnson & Johnson, and JPMorgan Chase & Co. These companies represent some of the leading names in their respective sectors, including information technology, consumer discretionary, and communication services.

As of September 30, 2024, the fund's top holdings included META PLATFORMS INC CLASS A, ALPHABET INC CLASS A, BERKSHIRE HATHAWAY INC CLASS B, and ALPHABET INC CLASS C. The percentage of assets allocated to each of these top holdings may vary, and the specific allocations are subject to change over time.

The fund's diversification policy allows it to invest in a variety of sectors and industries, mirroring the composition of the S&P 500 Index. This diversification provides investors with exposure to a broad range of U.S. companies and sectors, capturing a significant portion of the available U.S. market capitalization.

Performance

The Schwab S&P 500 Index Fund (SWPPX) is a mutual fund that tracks the Standard & Poor's 500 index, a widely watched benchmark for US stocks. The fund's goal is to mirror the total return of the S&P 500 Index, and it generally invests at least 80% of its net assets in stocks included in this index. The fund's largest holdings include well-known companies such as Apple Inc., Microsoft Corp., Exxon Mobil Corp., Johnson & Johnson, and JPMorgan Chase & Co.

As of 2024, the fund has returned 10.11% over the past year, 10.33% over the past three years, 10.99% over the past five years, and 11.12% over the past decade. The fund's performance can be further analysed by looking at its annual total returns for the last few years:

• 2023: 7.49%, 8.72%, -3.28%, 6.69% (YTD)
• 2022: -4.59%, -16.11%, -4.88%, 7.54%
• 2021: 6.17%, 8.55%, 0.57%, 26.11%
• 2020: -19.60%, 5.55%, 8.92%, 18.4%
• 2019: 13.63%, 4.30%, 1.70%, 9.07%
• 2018: -0.78%, 3.43%, 7.71%, -13.53%
• 2017: 6.04%, 3.10%, 4.46%, 6.64%
• 2016: 1.30%, 2.44%, 3.82%, 3.79%
• 2015: 0.90%, 0.28%, -6.45%, 7.01%
• 2014: 1.77%, 5.21%, 1.10%, 4.91%
• 2013: 10.59%, 2.85%, 5.23%, 31.79%
• 2012: 12.52%, -2.72%, 6.30%, -0.38%

The fund's performance over the years has had its ups and downs, but overall, it has shown strong returns, especially in the long term. The fund's expense ratio is an ultralow 0.02% to 0.03%, which is one of the lowest available for an S&P 500 fund. This gives the fund a cost advantage over its competitors.

Risk

The Schwab S&P 500 Index Fund is a mutual fund that tracks the total return of the S&P 500 Index. It is a large-blend fund that falls into Morningstar's large-blend category and is considered a core large-cap stock holding. The fund's goal is to provide investors with simple access to 500 leading U.S. companies, capturing approximately 80% of the available U.S. market capitalization. While the fund offers diversification and low costs, there are still risks associated with investing in any market-based investment product. Here are some key points to consider regarding the risks of investing in the Schwab S&P 500 Index Fund:

• Market Risk: The fund's performance is tied to the performance of the S&P 500 Index and the overall U.S. stock market. Equities can lose value due to various economic, political, or market factors. The fund's value will fluctuate, and investors could lose money if they sell their shares when the market is down. However, the fund has historically provided above-average returns over the long term.
• Volatility: The fund's volatility measurements reflect the uncertainty or risk of change in the value of its holdings. While the S&P 500 Index is considered relatively stable compared to individual stocks, it still experiences fluctuations in the short term. Investors need to be aware of the potential for short-term losses and be prepared to weather market volatility.
• Concentration Risk: The fund may concentrate its investments in a particular industry or group of industries if the S&P 500 Index it tracks becomes concentrated in those areas. This could lead to higher exposure to risks specific to those industries.
• Derivatives Risk: The fund may invest in derivatives, such as futures contracts, to minimize the performance gap between the fund and the index it tracks. Using derivatives can be risky as it may increase the fund's volatility and potential for loss.
• Management Risk: The fund is managed by veteran fund managers, but there is always a risk that their strategies may not perform as expected or keep pace with the S&P 500 Index.
• Expense Ratio Risk: While the fund currently has an ultralow expense ratio of 0.02% to 0.03%, there is a risk that this ratio could increase in the future, impacting the overall returns for investors.
• Long-Term Underperformance: While the fund has historically performed well, there is no guarantee that it will continue to do so. The fund could underperform the market or its peers for extended periods, impacting investors' returns.
• Systematic Risk: Investing in the stock market carries systematic risk, also known as market risk or volatility risk. This refers to the possibility that economic events or market-wide shocks could affect the overall stock market, causing a decline in the value of the fund's holdings.
• Liquidity Risk: While the fund is currently large and established, there is a risk that it may not always be able to meet redemption requests from investors due to a lack of liquidity in the underlying assets.
• Interest Rate Risk: Changes in interest rates can affect the value of the fund's holdings, particularly if they differ from what was expected or predicted. This can impact the fund's performance and the returns generated for investors.

In summary, while the Schwab S&P 500 Index Fund offers diversification and has historically provided strong returns, it is essential to remember that all investments carry some level of risk. Investors should carefully consider their risk tolerance, investment objectives, and time horizon before investing in the fund. Diversification, a long-term investment horizon, and a disciplined approach can help mitigate some of these risks.

Fund managers

The Schwab S&P 500 Index Fund is managed by Agnes Hong, Ferian Juwono, and David Rios, all veteran fund managers with extensive experience overseeing a diverse range of funds for Schwab. The fund's goal is to closely track the total return of the S&P 500 Index, a widely recognised benchmark for US stocks, covering approximately 80% of the investable market capitalisation of the US equity market.

The fund is designed to be a straightforward, low-cost investment option with no minimum investment required. It offers investors simple access to 500 leading US companies, including some of the most well-known and established businesses in the country. The fund's largest holdings include prominent names such as Apple Inc., Microsoft Corp., Exxon Mobil Corp., Johnson & Johnson, and JPMorgan Chase & Co.

Hong, Juwono, and Rios ensure that the fund generally invests at least 80% of its net assets in stocks included in the S&P 500 Index, with the actual percentage typically being considerably higher. They aim to replicate the performance of the index by giving the same weight to a given stock as the index does. Additionally, they may invest in derivatives, principally futures contracts, and lend securities to minimise the performance gap between the fund and its corresponding index.

The fund managers also have the flexibility to concentrate investments in a specific industry or group of industries, mirroring the index's concentration. This strategy allows the fund to provide investors with diversified exposure to a broad range of sectors and companies within the US market.

As of November 2023, the fund had assets totalling almost $73.90 billion invested across 504 different holdings, making it a significant player in the mutual fund space.

Frequently asked questions