Bet on This Top Ranked Large Cap Blend ETF
The U.S. economy has been on a roller-coaster ride this year. After a frozen first quarter, the second quarter was quite reassuring. Though the third quarter had a shaky start, positive housing data for July – both Starts and Permits – benign inflation numbers and no new event in the geopolitical backdrop pushed the key U.S. benchmark – the S&P 500 – to the tip of new all-time highs.
Notably, the Q2 earnings season brought in an accelerated growth pace. The pace of negative revisions for the upcoming quarters has eased considerably this time in comparison to the prior quarters of the past two years when steep downward revisions were frequent.
Nevertheless, all is not rosy in the global markets. After posting 0.2% growth rate in Q1, the Euro-zone GDP stalled in Q2 confirming that the region’s economy is losing steam. The economy of Euro zone’s powerhouse – Germany – in fact shrank in Q2.
Moreover, geopolitics has been ruling the global economy with the Russia-Ukraine crisis taking the center stage. The West has also put much of its wealth at stake to protest Russia’s invasion of Crimea (an erstwhile Ukrainian territory). Slowdown in China and Japan also add to the ongoing economic turmoil (read: New Active Multi-Asset ETF to Ride Out Current Turmoil).
In the U.S., the speculation over the timing of an interest rate hike and a mid-term election in November compounded the volatility in the equity market. Amid such a situation, targeting the large-cap blend stocks could be a great idea to navigate through the present market conditions.
Blend stocks have both value and growth features. While large caps offer exposure to a wide variety of stocks with value characteristics, such as low P/B, low P/S and low P/E ratios, which reduce company-specific risks. However, growth stocks behave in a different fashion (read: 3 Ultra Safe Bond ETFs to Dodge Market Turmoil).
Given this, a look at the top ranked ETFs in the space, with a moderate level of risk, could be a good idea for investors, especially for those concerned about the market direction, given the volatile global backdrop and the rising rate concerns. One way to find a top ranked ETF in the large cap blend space is by using the Zacks ETF Ranking system (read: Zacks ETF Rank Guide).
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while these also receive one of three risk ratings, namely Low, Medium, or High.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk (see more in the Zacks ETF Center).
For investors seeking to apply this methodology to their portfolio in the large cap blend sector, we have taken a closer look at the top ranked VV, which has a Zacks ETF Rank of 2 or Buy with a Medium risk tolerance level. The details are highlighted below (see: all Top-Ranked ETFs here):
VV in Focus
This ETF offers exposure to the large cap blend sector of the U.S. equity market, by tracking CRSP US Large Cap Index. Holding more than 600 stocks in its basket, the fund provides a nice balance across each security and prevents heavy concentration.
The top three holdings – Apple, Exxon Mobil and Google – comprise about 7% of the combined assets in the basket with Apple receiving as much as 3.1% allocation. The product puts nearly 17% in the top 10 holdings.
From a sector perspective, Financials has been the top priority of the fund representing about 17.5% of the total assets, closely followed by Technology and Consumer Services with 16.6% and 13.1% share, respectively.
The product so far has managed assets of $8.9 billion and is less volatile as indicated by the annualized standard deviation of 9.93%. Vanguard funds are known for being low cost products, pretty much across the board.
The product is also a cost-effective option in the large cap value equities space charging only 9 bps a year which is far lower than the average expense ratio in this ETF segment. Also, the fund trades at a decent volume of 150,000 shares a day leading to a low bid-ask spread ratio.
Style-wise, though the fund has about 40% exposure in growth stocks, it has a value tilt too, which keeps investors away from excessive volatility. Blend stocks account for about one-fourth of the portfolio. Lesser volatility and risks can also be confirmed by the fund’s almost entire focus on large-caps. However, this definitely does not mean low returns for the ETF.
VV has gained about 8.3% so far this year (as of August 20, 2014). The ETF has returned on par with broader market large cap blend funds such as SPY , VOO and IVV. Further, the ETF yields a decent dividend of 1.76% annually (as of August 20, 2014) and could thus be an interesting choice for investors seeking a low risk play.
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