The uncertainty surrounding a possible cut in the Fed's monetary
stimulus is looming large across the globe, resulting in market
volatility. Though small caps are leading the way higher so far, it
appears that the large caps are poised to become strong performers
in the remainder of the year (read:
Time for This Top Ranked Small Cap ETF?
This is especially true given the stronger tail end of the earnings
season, favorable job data, a recovering housing market and
increasing consumer spending. Large caps seem to be more reasonably
valued at this time and offer higher price appreciation
particularly when compared to small and mid cap securities.
Additionally, this trend has started to materialize from the start
of the third quarter from a fund flows look. Notably, the most
popular large cap ETF (
) pulled in nearly $4 billion compared to $2.5 billion for mid cap
) and under $2 billion for small cap (
This suggests that investors are cycling back to large caps, which
tend to be the most stable, for their exposure in an uncertain
environment. Furthermore, investors should focus on value stocks in
this capitalization level to earn more safety and assured returns
3 Ultra Cheap ETFs for Value Investors
The large cap value funds offer exposure to a wide variety of
stocks with value characteristics, such as low P/B, low P/S and low
P/E ratios, which reduce company specific risks. Further, according
to various academic studies, value stocks have outperformed the
growth ones over the long term and delivered higher returns with
Given this, a look at the top ranked ETFs in the space, with a
lower level of risk, could be a good idea for investors, especially
those concerned about the market direction, given concerns over the
Fed's QE program. One way to find a top ranked ETF in the large cap
value space is by using the Zacks ETF Ranking system (read:
Zacks ETF Rank Guide
About the Zacks ETF Rank
A look at the top ranked large cap value 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.
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 ETF Rank reflects the expected return of an
ETF relative to other ETFs with a similar level of risk.
Using this strategy, we have found an ETF -
iShares NYSE 100 ETF (
- in the space that has a Zacks ETF Rank of 1 or 'Strong Buy'
rating with a 'Low' risk outlook (read: all the
). The details of this interesting fund are highlighted below:
NY in Focus
This overlooked ETF offers exposure to the large cap value sector
of the U.S. equity market, by tracking the NYSE U.S. 100 Index.
Holding 101 stocks in its basket, the fund provides a nice balance
across each security and prevents heavy concentration.
The product puts nearly 30% in the top 10 holdings with Exxon Mobil
), Johnson & Johnson (
) and General Electric (
) as the top three holdings. These have decent Zacks Ranks as well
and collectively make up for 11.4% of total assets in the basket.
Other securities do not account for more than 3% of assets.
In terms of sectors, financials take the top spot at roughly
one-fifth of the total, followed by modest allocations to oil &
gas, industrials and health care. The fund is light on materials
and utilities, as these account for roughly 5% of the total
3 Surging Financial ETFs Beating the Market
The product so far has managed $57.8 million in its asset base and
trades in a paltry volume of roughly 2,000 shares per day. This
suggests that bid ask spreads may be a tad wider, and that total
costs may come in higher than the 20 bps expense ratio. However,
the underlying liquidity of the securities involved ensures that
this will not be much of a problem overall.
Further, the ETF is less volatile as indicated by the annualized
standard deviation of 12% and beta of 0.98. Not only has NY
delivered impressive returns of nearly 20% over the trailing
one-year period, it has also shown a strong run-up in its prices
this year, gaining nearly 16.7% so far in the time frame. Further,
the ETF yields a decent dividend of 2.27% annually.
This ETF has been overlooked by investors in the large cap space,
though it has delivered strong returns over the long term (read:
Large Cap ETFs here
). The fund is a bit costly when compared to other choices in the
space, while volume isn't great, though neither should be a big
problem considering its performance history.
So, investors looking for the large cap value ETF should consider
NY for their exposure, as it is a top rated ETF that is poised to
lead the way higher in the coming months, especially if the focus
returns to large cap stocks.
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