Zacks.com ETF Strategist Eric Dutram highlights: Try Value Investing With These Large Cap ETFs
Zacks
For Immediate Release
Chicago, IL – May 17, 2012 - Stocks and funds in this article include: Russell 1000 Value Index Fund (IWD), Vanguard Value Index Fund (VTV), PowerShares Dynamic Large Cap Value Fund (PWV), First Trust Large Cap Value AlphaDEX Fund (FTA), PowerShares Fundamental Pure Large Value Portfolio (PXLV), Guggenheim S&P 500 Pure Value ETF (RPV). Eric Dutram looks at six large cap value ETFs which could be interesting picks in the current market environment.
Try Value Investing With These Large Cap ETFs written by Eric Dutram of Zacks Investment Research:
It appears as though, once again, the economic outlook is clouded by global events. European markets remain weak thanks to the ongoing debt debacle while recent reports out of the U.S. aren’t exactly favorable thanks to lower than expected levels of job and GDP growth.
However, as we saw in the first part of the year, equities can still do pretty well in this environment and with the low interest rates currently being offered, stocks still seem like a good pick for most of an investor’s capital. Yet the higher levels of uncertainty could mean that investors might want to look at large caps for the vast majority of their exposure, and especially so in the value space.
Securities in the large cap segment tend to be the most stable but can still offer price appreciation opportunities as well. Furthermore, by honing in on value stocks in this capitalization level, even more safety can be assured to investors (read more on ETFs at the Zacks ETF Center).
This strategy can reduce overall volatility and can be the perfect choice for investors who are concerned about the market’s direction but still want some equity exposure, albeit in the safest securities possible.
While you can do this with individual securities, there are number of value-focused large cap ETFs which could be a better choice. These funds offer exposure to a wide variety of stocks with value characteristics—such as low P/B and low P/E ratios, eliminating company specific risk in the process (also see Mid Cap ETF Investing 101).
In this space, investors have a wealth of choices at their disposal. While many of the funds in the large cap value ETF segment have similar names, there are actually a great deal of differences which investors should be aware of.
Below, we highlight six of the most popular and unique products in this segment and discuss some of the key factors that investors should keep in mind when looking at this intriguing corner of the stock market:
Easily the biggest and most popular large cap value ETF, IWD has over $12 billion in AUM and sees volume approach 1.9 million shares on a regular basis. The ETF holds over 650 securities in its basket and charges investors a low 20 basis points a year in costs.
The value ETF tracks the Russell 1000 Value Index which represents approximately 50% of the total market cap of the Russell 1000 Index. Top sectors include financials, health care and utilities, while materials, staples, and tech are relatively underweight (see The Ten Biggest U.S. Equity Market ETFs).
In terms of individual securities, GE takes the top spot at just under 3% while it is closely trailed by Chevron, AT&T, and Pfizer. Dividends are also strong in this value fund as the product pays out about 2.2% on a regular basis, about 30 basis points higher than what investors see in broad S&P 500 focused funds.
For investors who put a premium on low expenses, VTV will be tough to beat in the large cap value space. The product charges investors just 12 basis points a year in fees, the lowest not only in the category but among the cheapest in the broader ETF industry at large as well. Furthermore, since the product has nearly $6 billion in AUM and volume of 430,000 shares, Thanks to this, bid ask spreads are tight, ensuring that total costs are very low.
In terms of holdings, this product has just over 400 securities in its basket with a focus on financials, energy and health care. Among the sectors that the security is light in include; basic materials, telecoms, and cyclical consumer stocks.
From a top individual security perspective, oil giants XOM and CVX take the top two spots and are trailed by GE, T, and PG. Investors should also note that the ETF pays out a robust dividend of about 2.5% a year, far higher than many other products in the space.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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