ETFs for Mega-Cap Inclined
It may be hard to believe, but at some point the mega-caps (companies larger than $100 billion) will rotate back into favor and provide leadership to the market.
The way stock market cycles tend to work is that early on, coming out of a bear market, small-caps tend to do better as capital flows into the riskier sector.
This was true in the early 1990s, and has been true for most of this decade as well. As the cycle matures, larger and larger-caps tend to provide leadership. This also happened in the late 1990s.
Many people have called for large-caps to lead for several years now, and have been proved wrong. However, history is on their side, and at some point big will lead. The current cycle has been weird so far, given how long small-cap has led, but I would not want to bet that the cycle has been totally repealed either.So what's an investor to do? Consider the following mega-cap exchange-traded funds (ETFs) for exposure to the sector. There are several ETFs that focus on the largest companies. Although buying them today may not be ideal, it does make sense to know what these ETFs are and study whether they might make sense for when big-caps become the main event. The Rydex Russell Top 50 (XLG) has all the big uglies. The fund invests in the 50 largest U.S. companies, and those 50 capture 40% of the capitalization of the Russell 3000 Index. XLG's sector breakdown is, not surprisingly, very similar to the S&P 500 with 22% in financials, 17% in technology and 16% in health care. Although there are 50 stocks in the fund, the holdings are concentrated in the top 10, which represent 42% of the holdings. Exxon Mobil (XOM) accounts for 7.13% of XLG, General Electric (GE) 6.78%, and Microsoft (MSFT) 4.63%. Once these superliners finally do turn around, XLG will be a great proxy for the biggest of the big. The fund's expense ratio is 0.20, the beta is 0.90, the yield is 1.64% and the average market cap is $114 billion. The elder statesman in the mega-cap ETF arena is the iShares S&P 100 Index Fund (OEF) (OEF). OEF's top 10 holdings mirror nine of the 10 in XLG but with smaller weighting in the fund. For OEF, the expense ratio is also 0.20, the beta is 0.88, the average market cap is $63 billion and the yield is 1.63%. Those two funds are domestic only, but if you're looking for some international mega action, there are two ETFs that blend domestic and foreign in the mega-cap world. The streetTRACKS DJ Global Titans Fund (DGT) has 50 holdings with 62% in the U.S., 17% in the U.K. and 7% in Switzerland. The fund has eight top 10 holdings in common with XLG and OEF, but DGT has a higher yield at 2.1%, the expense ratio is 0.50% and the weighted average market cap is $173 billion. Of course there's also an iShares fund in the segment: the S&P 100 Global 100 Index Fund (IOO). This fund has 49% in the U.S., 14% in the U.K. and 7% in France. Its average market cap is $78 billion, it yields 1.77% and its expense ratio is 0.40%.
|Comparing Four Monster ETFs
International exposure helps one break from the pack
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV