The mega-cap funds have remained relatively cheap because they have big stakes in undervalued sectors, such as technology. While the iShares dividend fund has 30% of assets in utilities, the Guggenheim mega-cap fund has nothing in the sector at all. Guggenheim has 22.6% of assets in technology, compared to 6.8% for the iShares dividend fund. The Guggenheim mega-cap fund's portfolio has a multiple of 14.2 and earnings growth of 8.8%. That looks appealing compared to the dividend fund, which has a multiple of 14.7 and earnings growth of 6.9%. Most investors already own at least some mega-cap stocks. Broad market ETFs such as SPDR S&P 500 ( SPY) have big stakes in such mega caps as Exxon Mobil ( XOM) and International Business Machines ( IBM). But this could be a time to overweight the group by adding a mega-cap fund.
During the late 1990s, mega-caps led small-caps and mid-caps as investors gravitated to giant technology stars. Then the trend reversed, as small stocks moved into the lead during the downturn that began in 2000. The giant stocks fared relatively well during the market collapse of 2008 when investors preferred familiar blue chips. But since then, mega-caps have trailed. During the past three years, the Guggenheim mega-cap fund has returned 16.8% annually, compared to 18.4% for the S&P 500. The definition of mega-cap varies. Some funds focus on the 50 largest stocks, while others include 100 or more names.
The Guggenheim fund holds the 50 biggest stocks in the Russell 3000 index. The average market capitalization of the portfolio is $166 billion. Exxon Mobil is the biggest holding, accounting for 6.0% of assets. Apple ( AAPL) is 5.7%. Other stocks in the top 10 include Microsoft ( MSFT), General Electric ( GE), and Chevron ( CVX). Holding about 300 stocks, Vanguard Mega Cap has an average market capitalization of $75 billion. Because it owns some smaller stocks, Vanguard has outperformed its Guggenheim competitor in recent years when mega caps have trailed. But when the very biggest companies move into the lead again, Guggenheim should be hard to top. At the time of publication, Luxenberg had no positions in stocks mentioned. Follow @StanLuxenberg This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.