Average annual return of the S&P 500: an analysis in Euros
The S&P 500 is one of the most well-known indices globally, comprising 500 of the largest companies in the United States. Although it is often used as a benchmark to measure the performance of the U.S. stock market, the S&P 500 is quoted in U.S. dollars (USD), not in euros (EUR).
Therefore, when analyzing the performance of the S&P 500 from the perspective of a European investor whose currency is the euro, challenges related to currency conversion arise.
In this article, we will explore how to evaluate the annual return of the S&P 500 in euros, using ETFs as a tool for analysis. These products make the analysis more practical and realistic, as they allow for direct investment, unlike the S&P 500 itself, which is merely an indicator.
Average annual return of the S&P 500 in Euros
As of December 31, 2024, the nominal annualized return in euros of the S&P 500 since January 1988 (the earliest date we found) is 11.53% (including dividends and without currency hedging – see the section “ETFs with and without Currency Hedging: What’s the Difference?”).
In the table below, you can see the annualized return of the S&P 500 in euros for various periods:
Sources: finance.yahoo.com; investing.com; ecb.europa.eu; koyfin.com
Below, we explore year-by-year returns with examples of ETFs that allow you to replicate the S&P 500 index.
The S&P 500 and currency impact
As mentioned in the introduction, the S&P 500 is quoted in U.S. dollars (USD). When a European investor wants to evaluate the performance of the index in their local currency (EUR), it is essential to consider the impact of exchange rate fluctuations.
The variation between the dollar and the euro can significantly influence the return on an investment, regardless of the performance of the underlying stocks. The shorter the investment period, the more noticeable this impact tends to be.
Examples:
- If the S&P 500 rises by 10% in a year, but the dollar depreciates by 5% against the euro, the return in euros will be approximately 5%.
- Conversely, if the dollar appreciates by 5% against the euro, the return in euros will be approximately 15%, which would be higher than the index's performance.
ETFs to evaluate returns in Euros
ETFs (Exchange-Traded Funds) are financial instruments that replicate indices like the S&P 500 and are available to European investors. These products simplify investing in the index, allowing us to calculate annual returns in a practical and Europe-friendly way.
For this study, we will use two ETFs available in Europe that replicate the S&P 500:
- iShares Core S&P 500 UCITS ETF USD (Acc) – Ticker: SXR8 – A non-currency-hedged ETF.
- iShares S&P 500 EUR Hedged UCITS ETF (Acc) – Ticker: IBCF – A currency-hedged ETF.
ETFs with and without Currency Hedging: What’s the Difference?
Without Currency Hedging
The SXR8 ETF replicates the S&P 500, but the investor assumes currency risk. This means the ETF's return depends not only on the performance of the S&P 500 stocks but also on the fluctuation of the EUR/USD exchange rate.
- Advantage: Lower cost due to the absence of currency protection mechanisms.
- Disadvantage: Higher volatility due to currency fluctuations.
With Currency Hedging
The IBCF ETF offers currency hedging, eliminating the impact of fluctuations between the dollar and the euro. Thus, the return reflects only the performance of the S&P 500 companies, regardless of currency variations.
- Advantage: Greater predictability of returns in euros.
- Disadvantage: Higher costs due to the financial instruments used for currency hedging.
Annual return of the S&P 500 (in Euros)
In the table below, we present the annual returns of the S&P 500 in dollars and euros (with and without currency hedging). The columns are as follows:
- USD: Represents the total real return of the S&P 500 in dollars.
- SXR8: ETF in euros without currency hedging.
- IBCF: ETF in euros with currency hedging.
Note: These are total returns, meaning they include dividends:
Source: lazyportfolioetf.com; ycharts.com
Conclusion
Analyzing the return of the S&P 500 from the perspective of a European investor requires attention to the currency of quotation and the impact of exchange rates. Using ETFs like SXR8 (without currency hedging) or IBCF (with currency hedging) is an effective way to conduct this analysis, as these are investable products that reflect the index's performance.
The choice between ETFs with or without currency hedging will depend on each investor's risk profile and currency outlook. For those seeking simplicity and lower costs, SXR8 may be more attractive. On the other hand, those who prefer to avoid currency impact may opt for a hedged ETF.
Disclaimer: This article does not provide financial advice or investment recommendations. All content is for informational and educational purposes only. Capital is at risk. Past performance and forecasts are not reliable indicators of future results. It is essential to conduct your own analysis before making any investment. If necessary, consult independent financial advice from a qualified professional.
