Large Cap ETF (IVV) Promoted to Rank #2
The second largest large cap ETF, iShares Core S&P 500 ETF IVV, was recently upgraded by a notch to a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. With the astounding surge in the stock market, this ETF has gained immense popularity and has been scaling new highs outplaying all the hurdles.
In fact, large cap stocks have been leading the market rally this year. The bullish trend is likely to continue this summer given improving global sentiments, strong corporate earnings, stabilizing oil price and upward revision to first-quarter GDP growth that instilled confidence in the health of the American economy (read: 4 Top Sector ETFs & Stocks to Cool Off This Summer).
However, the latest bout of downbeat economic data, growing geopolitical tension, threats of political uncertainty, doubts over the implementation of Trump’s plans and expensive valuation continue to weigh on stock performances. Being a large cap fund, IVV offers stability, as mature companies are less volatile to large swings in stock prices.
With AUM of nearly $112 billion, IVV has pulled in about $17.1 billion in its asset base so far this year, topping the list of the asset gatherers. This is in stark contrast to the ultra-popular large cap ETF - SPY - that saw about $4.7 billion of outflows in the same time frame.
IVV in Focus
This ETF seeks to match the performance and yield of the S&P 500 Index and holds 505 stocks in its basket. It is well spread out across each component as none of the firms holds more than 3.64% of the total assets, suggesting a nice balance across each security and prevents heavy concentration. Apple AAPL, Microsoft MSFT and Amazon AMZN occupy the top three positions in the basket (read: Forget Big Tech, Bet on These Overlooked ETFs).
However, the product is slightly tilted toward information technology sector with 22.5% share while financials, health care, consumer discretionary and industrials accounting for a double-digit exposure each. Investors should note that the technology sector has been on fire this year buoyed by an impressive rally of FANG stocks.
About half of the portfolio is dominated by growth stocks, which is providing an added advantage to the ETF. This is because growth investing is basically a momentum play and a great strategy in a trending market (a market characterized by a prolonged uptrend). Growth stocks refer to high-quality players that are likely to witness revenue and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices. As such, growth funds tend to outperform during an uptrend (read: 5 Top-Ranked Growth ETFs & Stocks to Buy Now).
Further, the product is a low cost choice in the large cap space, charging just 4 bps in fees per year from investors. It is highly liquid, trading in average daily volumes of more than 3.5 million shares, probably ensuring no additional cost in the form of bid/ask spread. Moreover, it is less volatile as indicated by the annualized standard deviation of 13.28% and beta of 1.
The ETF hit new all-time high of $246.57 per share in the last week, having gained nearly 9% in the year-to-date timeframe. This is compared to gains of 4.8% for the small cap fund IWM and 6.3% for the mid cap fund IJH. IVV sports an annual dividend yield of 1.81%.
Given the above discussion, investors looking for large cap ETFs should consider IVV, as it is poised to lead the way higher in the coming months.
About the Zacks ETF Rank
A look at the top-ranked large cap ETFs can be done by using the Zacks ETF Rank. This technique provides a recommendation for the ETF in the context of our outlook of the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors (read: Our Zacks ETF Rank Guide).
The aim of our model 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 Rank reflects the expected return of an ETF relative to other ETFs with a similar level of risk.
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