Large Caps have been strong performers so far in 2013, and
many are expecting the gains to continue as we approach the
summer months. This is especially true given the stronger tail
end of the earnings season, and some more favorable data-like
jobs-to open up May.
Large caps are also presenting a more reasonable value at this
time, particularly when compared to small and mid cap securities.
Stocks in these market levels have seen a huge run in the past
six months and so some believe that larger securities could be
better positioned at this time.
Plus from a fund flows look, this trend is starting to
materialize. Large cap
have seen billions in inflows to start the quarter (
has pulled in nearly $2 billion alone) while small cap funds have
seen big outflows in some cases (
has lost about $1.4 billion).
This suggests that investors may be starting to cycle back to
large caps for their exposure, and that this is where portfolios
should be tilted towards by ETF investors.
Given this, investors might want to stay in the large cap ETF
world and focus on funds that offer exposure to bigger
securities. However, there are a bunch of options in this segment
and some investors may have trouble figuring out the relatively
small differences in this extremely similar corner of the ETF
Active Large Cap ETFs: The Best of Both
While there are a number of easy ways to narrow down the list,
a look to the Zacks ETF Rank for guidance might also be a helpful
option. By looking to this metric, investors can tap into a
forward looking analysis of ETFs which seeks to find the best
products in each category.
More on the Zacks ETF Rank
This approach provides a recommendation for an ETF in the
context of our outlook of the underlying style box. This approach
also takes into account risk preferences of investors as
The aim of this process is to find the best ETF within each
risk category, assigning each ETF one of five ranks with 1 being
Strong Buy and 5 being Strong Sell. Thus, the Zacks ETF Rank
looks to reflect the expected return of an ETF relative to other
ETFs with a similar level of risk (read the
Zacks ETF Rank Guide
Using this technique, we have found a few top ranked ETFs in
the large cap category. But one that you may have overlooked-and
that has been leading the market-is undoubtedly the
PowerShares Dynamic Large Cap Value ETF (
PWV: A Better Large Cap ETF
This fund offers up solid exposure to the large cap value
space by tracking the Dynamic Large Cap Value Index. This
benchmark gives PWV access to about 50 companies, with assets
spread out among the well-known names in this group.
However, it is worth pointing out that this fund doesn't just
invest in 50 large companies that have value characteristics, as
it instead goes through a much more rigorous screening a
selection process. Included in this technique are financial
metrics such as price and earnings momentum, quality, management
action, and value (See
Time to Consider Pure Growth and Value ETFs?
The benchmark is rebalanced and reconstituted on a quarterly
basis, ensuring that no single company dominates the portfolio.
However, investors should note that the fund is a bit costly
thanks to this process, charging investors 59 basis points in
This compares very unfavorably with many other large cap ETFs
out there, some of which, such as MGV, charge just 12 basis
points a year in fees. This creates a bit of an alpha hurdle that
must be passed in order to justify the added cost, though PWV has
certainly accomplished this in recent trading.
In addition to possessing a solid yield of 2.2%, the ETF has
crushed large cap markets in the process. The fund has beaten out
and more similar funds like
by a pretty good margin in the trailing one year time frame, with
big gains in longer time periods as well.
So clearly, the fund is able to justify its higher expense
ratio, at least based on this look. Plus, thanks to a solid
volume level and its holding of liquid securities, there
shouldn't be much of an issue on a trading front, ensuring that
bid ask spreads will be kept low here (see
Try Value Investing with These Large Cap ETFs
Despite this outperformance, PWV remains relatively unloved by
investors. The product has just over half a billion in assets, a
fraction of many others in the space.
This is rather unfortunate, as PWV has shown itself to be a
strong performer, and one that can certainly validate a higher
expense ratio. So if you are in the market for a large cap value
ETF, make sure to consider PWV for your exposure, as it is
certainly living up to its top ETF ranking.
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ISHARS-SP500 VL (IVE): ETF Research Reports
ISHARS-RS 1K VL (IWD): ETF Research Reports
VANGD-MG300 VAL (MGV): ETF Research Reports
PWRSH-DYN LC VL (PWV): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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