Investing in the S&P 500, one of the world’s most renowned stock market indices, has long been a popular choice for investors seeking exposure to the US equities market. However, if you are based in the UAE, you might be wondering how to gain access to this investment and what is the best approach to invest in the S&P 500 from the UAE.
In this comprehensive guide, we will provide you with a step-by-step process for buying the S&P 500 from the UAE. We will cover important aspects such as choosing a suitable S&P 500 ETF, offering tips for selecting an ETF broker, and more!
How to buy the S&P 500 from the UAE (Step-by-step guide)
1. Pick an ETF tracking the S&P 500
The S&P 500 measures the performance of 500 large-cap US companies, including companies such as Apple, Microsoft and Amazon. These companies span various sectors and are considered representative of the overall US equity market. As such, investing in the S&P 500 exposes you to a broad range of companies and can serve as a cornerstone of a diversified investment portfolio.
When it comes to investing in the S&P 500 from the UAE, it will be costly and inefficient for individual investors to attempt to invest in each of these 500 companies separately. However, Exchange-Traded Funds (ETFs) offer a practical solution by providing a single investment vehicle representing the entire index’s performance. By investing in S&P 500 ETFs, Emiratis and UAE residents can effectively participate in the potential growth of the index and enjoy the benefits of diversification.
While there are no ETFs listed on the Dubai Financial Market (DFM) that directly track the S&P 500, investors can still gain exposure to the index by investing in international ETFs listed on other exchanges. To assist you in finding suitable options, we have compiled a list of some of the largest ETFs that track the S&P 500. This list was generated using the Morningstar ETF screener.
|Name||ISIN||Ticker*||Currency||Annual fee (TER)||Replication method||Use of income||Fund size (in $B)|
|SPDR® S&P 500 ETF Trust||US78462F1030||SPY||USD||0.09%||Physical||Distributing||412+|
|Vanguard S&P 500 ETF||US9229083632||VOO||USD||0.03%||Physical||Distributing||312+|
|iShares Core S&P 500 ETF||US4642872000||IVV||USD||0.03%||Physical||Distributing||310+|
|iShares Core S&P 500 UCITS ETF||IE00B5BMR087||CSPX||EUR||0.07%||Physical||Accumulating||52+|
|Invesco S&P 500 UCITS ETF Acc||IE00B3YCGJ38||SPXP||GBP||0.05%||Synthetic||Accumulating||12+|
*Each fund provider offers a variety of ETFs that track the S&P 500. We have chosen one ETF from each provider to simplify the analysis in this guide. However, we encourage you to visit the Morningstar ETF screener to explore and evaluate all the available ETF options.
Don’t worry if you are unfamiliar with what the “Replication method” and “Use of income” mean; we’ll explain them later in this guide. Now, let’s move to the second step on how to buy the S&P 500 from the UAE.
2. Choose a good ETF broker
After selecting an ETF, the next step is to identify a reliable broker to let you invest in it. To do this, we’ll briefly summarize what each broker offers on their platforms.
Disclaimer: Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees.
*XTB offers ETFs from this provider that track the S&P 500 but are listed on other exchanges. Therefore, we have marked it as “Yes” to indicate that the ETF family is available on XTB.
Other important factors to consider when selecting an ETF broker are the fees, minimum deposit requirements, and the range of available ETFs. Here is a summary of these factors for each broker:
|Broker||ETF Transaction Fees||Min. deposit||Number of ETFs||Regulators||Islamic account availability|
|Interactive Brokers||Varies by exchange with tiered pricing: Between $0.0005 and $0.0035 per ETF share||$0||13,000+||FINRA, SIPC, SEC, CFTC, IIROC, FCA, CBI, AFSL, SFC, SEBI, MAS, MNB||No|
|Saxo Bank||Between $0.01 and $0.02 for US-listed ETF shares (minimum between $3.99 and $10.99 per order)||$5,000||7,000+||ASIC, FSA, FCA, SFC, MAS, FINMA, and DFSA||Yes|
|eToro||$0 (not all ETFs)||$50||260+||FCA, CySEC, ASIC||Yes|
|Sarwa||$0||$0||4,000+*||DFSA and FSRA||Yes|
|XTB||$0||$1||260+||FCA, KNF, CySEC and FSC||Yes|
*Stocks and ETFs
3. Place a “Buy Order”
Once you have chosen a suitable ETF broker and funded your account, you are ready to place a “Buy Order” for the S&P 500 ETF. For this example, we will use Interactive Brokers. However, you can follow these steps to execute your purchase with any broker:
a) Search for the desired S&P 500 ETF
Use the search function or browse through the available ETFs to find the specific S&P 500 ETF you have selected. Refer to the ticker symbol to locate the ETF accurately (in our case, we searched for SPY).
You may come across instances where the broker offers multiple versions of the same ETF, denominated in different currencies such as USD, EUR or GBP. It is advisable to select the one that aligns with your account currency. For example, if your account currency is USD, choosing a USD-denominated ETF will help you avoid currency exchange fees.
b) Click on “Buy” or “Invest”
Usually, this tab is clear once you are on the ETF page, where you will find the chart and key information about the ETF.
c) Choose the order details
Now, you must choose the appropriate order type based on your preferences and trading strategy.
- Limit Order: It is set by default on IBKR. So you can set a specific price at which you are willing to buy the ETF. The trade will only be executed if the market price reaches or falls below your specified limit price.
- Market or Trader Order: This order executes the trade at the prevailing market price and provides immediate execution.
- Amount or Units: Specify the amount of money or the number of shares you wish to invest in the S&P 500 ETF.
d) Place the order
Finally, click “Submit But Order” to submit your order. At this point, the broker will process the transaction and attempt to execute the trade at the specified parameters.
What to look for in any ETF?
Not all ETFs are the same, and it’s important to consider several factors before deciding. Here are some factors to consider:
1. Fees (TER)
Different asset managers charge varying fees for their ETFs. For instance, providers like BlackRock (iShares) and Vanguard charge a small annual fee which is subtracted from the fund’s assets directly. As such, choosing an ETF with lower fees can result in higher returns on your investments. Ongoing charge (OCF) or total expense ratio (TER) are standard terms to describe this overall management fee.
2. Replication method
ETFs can employ two different replication methods:
- Physical replication, which involves purchasing the actual assets outlined in the index,
- Synthetic replication, where the fund manager utilizes financial derivatives to mirror index performance.
Additionally, you might encounter some ETFs that combine both approaches. Given the high liquidity of the S&P 500’s underlying companies, physical replication is often preferred due to its lower costs and reduced risks associated with derivatives.
3. Use of Income
ETFs also differ in how they handle income generated by the underlying companies.
- Accumulating ETFs reinvest dividends received from the companies included in the index, leading to a higher ETF price. You won’t need to pay transaction fees or trading costs for dividend reinvestment, as it is done automatically.
- Distributing ETFs, on the other hand, provide regular dividend payments directly to your brokerage account, requiring you to declare the received dividends.
Ultimately, deciding between accumulating and distributing ETFs depends on your circumstances and investment strategy. Assess your long-term goals and income requirements to select the best option for your needs. For instance, if you plan to hold your investment for a relatively long period without the need for regular income, an accumulating ETF may be more suitable. However, if you aim to earn regular income from your investment, a distributing ETF would be a better choice.
Fortunately, the UAE offers a tax-efficient environment with no capital gains or dividend taxes for investors. However, it is crucial to carefully consider the potential tax implications when investing in US-domiciled ETFs, which may be subject to a 30% withholding tax on dividends. To optimize tax efficiency, it might be better to prioritize ETFs domiciled in Europe, such as those based in Ireland. This is due to the existence of a tax treaty between Ireland and the US, resulting in a lower dividend tax rate of 15%. Nevertheless, consulting with a tax advisor to obtain personalized guidance and ensure compliance with the relevant tax regulations is strongly recommended.
Consider the overall fund size when selecting an ETF. Larger funds generally carry a lower risk of liquidation compared to smaller ones. In the event of liquidation, a fund sells its holdings, settles obligations, and distributes the remaining funds to investors.
Some ETFs employ hedging strategies using financial derivatives to mitigate the impact of currency fluctuations. While this protects against large currency swings, it also comes at an additional cost.
The ETF domicile refers to the country where it is registered and regulated. It plays a significant role in determining the tax implications for investors. Different domiciles may have varying tax treaties and regulations that can affect the withholding tax on dividends and capital gains. For example, Ireland-domiciled ETFs often benefit from favourable tax treaties with the United States, resulting in lower dividend withholding tax rates.
What is the S&P 500?
The S&P 500 is a widely recognised stock market index that tracks the performance of 500 large-cap U.S. companies.
Why would someone in the UAE want to invest in the S&P 500?
Investing in the S&P 500 allows Emiratis and UAE resident investors to gain exposure to the US market and potentially benefit from its long-term growth.
Is there a S&P 500 ETF quoted in AED?
No, there is no S&P 500 ETF in AED. However, it is possible to invest in S&P 500 ETFs from any country, including the UAE.
For example, one of the most well-known S&P 500 ETFs is the SPDR S&P 500 ETF (SPY) traded on the New York Stock Exchange in USD. If you are based in the United Arab Emirates, you might be able to invest in this ETF through an international brokerage account, but your investment would be subject to exchange rates between AED and USD.
Some international financial institutions might offer ETFs that track the S&P 500 and are traded in other currencies (EUR or GBP, for example). you should be aware that the value of your investment could still be affected by changes in the exchange rate between the traded currency of the ETF and the USD.
Should I invest in Ireland-domiciled ETFs or US-based ETFs?
Ireland-domiciled ETFs can take advantage of the US-Ireland tax treaty, which imposes a lower withholding tax rate of 15% on dividends. In contrast, US-listed ETFs are subject to a higher withholding tax rate of 30%. However, we recommend that you check with your tax advisor for customized advice.
Which brokers in the UAE offer access to S&P 500 ETFs?
What is an Exchange Traded Fund (ETF)?
An Exchange Traded Fund (ETF) is a type of investment fund traded on stock exchanges. It is designed to track the performance of a specific index, commodity, sector, or asset class. If you invest in an S&P 500 ETF, you will gain exposure to the performance of over 500 companies without needing to invest in each individual company separately. This provides a convenient and efficient way to diversify your investment across a wide range of holdings within the index.
Is Robinhood available in the UAE?
Unfortunately, Robinhood is not yet available in the UAE; however, you can check our top Robinhood alternatives in the UAE for some insights.
What are CFDs? Should I invest in S&P500 CFDs?
Contracts for Difference (CFDs) are derivative financial instruments that allow traders to speculate on the price movements of an underlying asset without actually owning the asset itself. Investing in S&P 500 CFDs involves trading based on the price fluctuations of the S&P 500 index. To learn more about it, read our article: CFDs vs Shares: Understand the Differences.
Is TD Ameritrade available in the UAE?
Unfortunately, TD Ameritrade is not yet available in the UAE; however, you can check our top TD Ameritrade alternatives in the UAE for some insights.