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The S&P 500 is the most important US equity index which provides exposure to the largest US companies. It is considered around the globe as a barometer of US stock market performance. The index is market-cap weighted and it covers approximately 85% of available US equity market capitalization. The largest members of the index are household names such as Apple, Microsoft, Amazon, Tesla and Alphabet. The index therefore reflects and captures the strength of the US economy and in recent decades has benefited from the rise of US technology stocks.
The S&P 500 index has provided an average annual return of +9.3% over the past two decades, which has placed it ahead of equity performance of other regions. For example, European stocks captured by the MSCI Europe index had an average annual return of +6.1% in the same period, while a global stock portfolio (represented by the MSCI ACWI index) had an average annual return of +8.1%. With this solid performance, US stocks have grown to represent a 62% share in the global stock universe; today it is easily the single most important component of a typical diversified investment portfolio.
Market access with ETFs
The easiest way to gain exposure to the S&P 500 portfolio is via an Exchange Traded Fund (ETF). ETFs can be used as convenient and cost-effective building blocks in constructing a globally diversified portfolio. An investor can increase or reduce positions in an ETF at any time by trading on an exchange such as the London Stock Exchange (LSE).
S&P 500 with a sustainability overlay
More and more investors are considering Environmental, Social and Governance (ESG) factors in their investment process. Gaining exposure to popular indices such as the S&P 500 with added ESG screening has proven increasingly popular with professional investors and has also shown to help mitigate drawdown risk in portfolios over the long term. The UBS S&P 500 ESG UCITS ETF and the UBS S&P 500 ESG Elite UCITS ETF are examples of passive funds which provide a sustainable alternative to standard S&P 500 exposures.
S&P 500 ESG
The underlying S&P 500 ESG index is designed to offer broad market representation and can be viewed as a core building block with a sustainable overlay. From an ESG perspective, it applies business-activity exclusions that are deemed essential (so, companies involved in controversial and military weapons, tobacco, and thermal coal are excluded) and it removes companies involved in serious violations of the UN Global Compact Principles. Furthermore, it divests from companies with lackluster sustainability profiles, e.g. companies that are in the bottom quartile by ESG-score within their respective sector. With this construction, the S&P 500 ESG index comprises of approximately 300 stocks, which are broadly diversified across sectors. This ESG portfolio therefore maintains risk and return properties close to that of the standard S&P 500, while exhibiting an improved ESG profile and lower carbon footprint as compared to the parent index.
Performance of the UBS S&P 500 ESG UCITS ETF vs. S&P 500 Index since ETF's inception date
S&P 500 ESG Elite
The S&P 500 ESG Elite index follows a more stringent approach than the S&P 500 ESG. The set of business activity exclusions is considerably broader: in addition to those exclusions in the S&P 500 ESG, the ESG Elite also excludes alcohol, nuclear power, gambling, adult entertainment, GMO, predatory lending and palm oil. There are also strict climate-related exclusions covering oil & gas, oil sands, shale energy and arctic oil & gas. The index is also more selective in terms of ESG credentials of companies: the aim is to select the top quartile of companies as measured by market capitalization with the highest ESG scores for each sector. With this construction, the S&P 500 ESG Elite index becomes a portfolio of circa 100 stocks, which meet all requirements to be considered sustainability leaders.
Performance of the UBS S&P 500 ESG Elite UCITS ETF vs. S&P 500 index since ETF's inception date
Choosing the right ETF
The pair of sustainable UBS S&P 500-related ETFs which track these indices supports investors in aligning their investment strategy not only with their financial goals, but also with their sustainability views and objectives. An ESG-orientated investor who wants to keep a close correlation to the standard S&P 500 index may prefer the UBS S&P 500 ESG ETF, which remains closer to the flagship S&P 500 portfolio. An investor who is strongly committed to ESG may prefer the UBS S&P 500 ESG Elite ETF as it offers a stronger sustainability profile. To put the ESG credentials in context, the ESG score improvement (vs the parent index) of the S&P 500 ESG and S&P 500 ESG Elite indices are, respectively, +12.8% and +32.8% (Table 1). The weighted average carbon intensity of the portfolios were reduced by 18.2% and 39.3%, respectively, relative to the parent index.
The S&P 500 ESG and S&P 500 ESG Elite indices have performed broadly in line with the flagship S&P 500 index, while providing slightly better excess returns over the past decade, respectively, +39bps for the ESG variant and +72bps per annum for the ESG Elite variant (Figure 1).
Figure 1. Metrics and performance of Indices (July 2012 - July 2022)
| S&P 500 | S&P 500 ESG | S&P 500 ESG Elite | |
| Number of stocks | 503 | 307 | 97 |
| Annual return | 13.13% | 13.52% | 13.85% |
| Excess return (over parent index) | + 0.39% | + 0.72% | |
| ESG Score* | 68.91 | 77.72 | 91.5 |
| ESG Score improvement vs parent | +12.8% | +32.8% | |
| Weighted average carbon intensity | 206 | 168.61 | 125.02 |
| Carbon reduction vs parent | -18.20% | -39.30% |
Source: S&P Global, UBS Asset Management. Data as of 29 July 2022. ESG Score as of 29 April 2022. Includes backtested data.
Past performance whether simulated or actual is not a reliable indicator of future returns.
UBS S&P 500 ESG and UBS S&P 500 ESG Elite information
| ISIN | Share Class Name | Exchange | Ticker | Sedol | Bloomberg Ticker |
| IE00BHXMHK04 | UBS (Irl) ETF plc - S&P 500 ESG UCITS ETF (USD) | LSE | S5SD | BJ7JJQ1 | S5SD LN |
| IE00BHXMHR72 | UBS (Irl) ETF plc - S&P 500 ESG UCITS ETF (hedged to GBP) | LSE | 5ESG | BHXMHR7 | 5ESG LN |
| IE00BLSN7P11 | UBS (Irl) ETF plc - S&P 500 ESG ELITE UCITS ETF (USD) | LSE | S5EE | BMGWD48 | S5EE LN |
| IE00BLSN7X94 | UBS (Irl) ETF plc - S&P 500 ESG ELITE UCITS ETF (hedged to GBP) | LSE | S5EG | BLCD865 | S5EG LN |
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