Innovative Large-Cap ETFs

04/01/2015 9:00 am EST


David Fabian

Managing Partner, FMD Capital Management

A significant cross section of the investment community has been conditioned to benchmark their large-cap ETF exposure against the SPDR S&P 500—the largest ETF in the world and the most commonly referenced yardstick of equity returns—observes David Fabian, editor of FMD Capital.

Investing in SPDR S&P 500 ETF (SPY) makes sense if you are looking to track the market cap weighted S&P 500 Index. But there is an extensive universe of unique large-cap funds that deserve your attention as well.

Many of these innovative ETFs offer a strong case for targeting a niche style or index methodology that may enhance your returns over the long-term.

Vanguard Growth ETF (VUG)

Growth stocks have significantly outperformed value names over the last five years, which is why VUG is one of the top performing large-cap ETFs in its class.
This fund has $17.5 billion in total assets tracking 371 companies across a variety of sectors.

VUG has gained 17.30% in average annualized return over the last half decade, while SPY has notched a 16.01% profit (though February 28, 2015).

Because of its growth demographic, VUG has 44% of its portfolio exposure dedicated to technology and consumer services companies, such as Apple (AAPL) and Walt Disney (DIS).

Conversely, it  has very limited exposure to utility, telecom, and basic materials. With a 0.09% expense ratio and diversified basket of holdings, VUG should be considered as a strong SPY alternative for your portfolio as well.

First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)

The market-cap weighted structure of PowerShares QQQ (QQQ) leads to a very top heavy asset allocation directed towards AAPL and Microsoft (MSFT) as the two largest companies.

For more consistent overall diversification, I recommend the large-cap technology growth theme through First Trust NASDAQ-100 Equal Weighted, which allows for a level distribution of assets across all 100 stocks.

The unique organization in QQEW generated annualized market price returns of 18.65% over the last five years, which again beat the performance of SPY.

This ETF has a higher expense ratio of 0.60%, yet still offers a compelling basket of high growth stocks to own in a bull market.

PowerShares S&P 500 High Quality Portfolio (SPHQ)

Looking for a way to cherry pick top quality stocks from the S&P 500 Index? SPHQ has done just that by identifying companies with the potential for long-term growth through stability of earnings and dividends.

The end result is a diversified portfolio of 130 stalwart stocks identified by Standard & Poor's that are rebalanced and evaluated quarterly.

The majority of the portfolio is in the industrial and consumer sectors, which makes this fund unique from many of the technology-heavy offerings that dominate this category.

SPHQ has a net expense ratio of 0.29% and over $550 million in total assets.
This ETF has gained 18.67% in annualized total return over the last five years as well.

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