After a sluggish start to 2014 following a slew of weak data
points, the U.S. markets once again gained momentum on better labor
, comforting earnings picture with more companies beating top and
bottom line estimates thanks to easier comps, improved new home
sales data and easing geopolitical tension between Russia and
Ukraine. The S&P 500 index and the NASDAQ are presently
hovering around multi-year highs.
In fact, weather-related distortions justified whatever poor
economic data the market has delivered so far. Investors have
apparently decided to attribute the weak ADP and service sector ISM
surveys, ticked down GDP growth estimate for 2013 Q4, and most
lower-than-expected data for 2014 Q1 to severe winter.
And the stock markets seem largely unruffled by this recent
softness. Further, the axe on QE stimulus is also giving cues of
sustained economic recovery (read:
Play the Market Rally with These ETFs
Not only this, optimism is also slowly building up on other
developed regions like Europe and Japan. European new-car sales
expanded for the
successive month in January, indicating continued revival in the
region. Investors should note that auto sales are a prime indicator
of consumers' purchasing power (read:
Another Europe ETF on the Horizon from iShares?
Even in its recent policy meeting, the European Central Bank stayed
on track with the ongoing policy measure. No urgent need for policy
easing in the wake of the recent improvement in the region's growth
and inflation pictures also hints at the bullishness in the Euro
zone. Things are also shaping up well in some emerging and frontier
Best Investment Option
In such an economic backdrop, large caps stocks - with wide global
exposure - should be considered as an investment avenue in 2014.
Notably, most U.S. large caps are presently attractively valued as
compared to a good number of small-caps which had a spectacular run
Among the large-cap set, style-wise, growth investing might earn
investors considerable returns. Growth investing is basically a
momentum play, which makes it a great strategy in a trending market
(i.e. a market characterized by a prolonged uptrend).
However, growth stocks and the resultant ETFs exhibit a higher
degree of volatility especially compared to value stocks. Also, the
market is likely to witness volatility in the coming weeks on a
possibly faster QE tapering.
Additionally, the upcoming mid-term elections in November 2014 can
result in considerable volatility and market correction. That is
why it is recommended to play the growth momentum of the U.S.
market with a focus on large-caps, as these are generally less
Thus, a look at the top ranked large-cap growth ETF could be a good
idea to ride on this optimism, especially based on our Zacks ETF
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, style
box, or asset class.
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 Rank reflects the expected return of an ETF
relative to other products with a similar level of risk (see more
For investors seeking to apply this methodology to their portfolio
in the large cap growth sector, we have taken a closer look at the
top ranked QQEW, which has a Zacks ETF Rank of 1 or Strong Buy with
a 'medium risk' level. The details are highlighted below (see
all the Large Cap ETFs here
First Trust NASDAQ-100 Equal Weighted Index Fund
Launched in April 2006, QQEW looks to replicate the performance of
the NASDAQ-100 Equal Weighted index. This benchmark index provides
exposure mostly to the largest domestic, and to some extent,
international companies holding each stock in an equal-weighted
fashion. An equal-weighted approach also alleviates some
company-specific concentration risks from the ETF.
The fund invests $535.6 million of assets in 101 stocks. Top
companies include Tesla Motors (
), Illumina (
), Green Mountain Coffee Roasters (
) with a combined share of 4.37%. No stock accounts for more than
1.60% of the basket.
QQEW appears to be heavily invested in the Technology sector with
40.40% of investment, followed by 26.88% in Consumer Services and
13.19% in Health Care. Notably, technology was the second best
performing sector in terms of beat ratios last earnings season, as
per the Zacks earnings trend (read:
Top Ranked Technology ETF in Focus: QTEC
The fund charges 60 bps in annual fees which is a bit higher than
the average fees charged by the large-cap growth equities ETFs.
QQEW gained 5.66% year to date against 1.93% gains in
S&P 500 ETF
). The fund presently carries a Zacks ETF Rank # 1 (Strong Buy)
with 'medium' risk outlook.
QQEW is extremely vulnerable to tech stocks. Notably, technology
saw improved earnings and revenue growth rates as well as beat
ratios in fourth-quarter 2013 relative to many other sectors and
the stellar performance is expected to continue in 2014 and 2015.
The fund's second and third sector holdings, Consumer Discretionary
and Healthcare, also call for substantial growth this year and in
the next, thus making QQEW a wise bet for investors seeking a top
ranked large cap focused fund for 2014.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
KEURIG GREEN MT (GMCR): Free Stock Analysis
ILLUMINA INC (ILMN): Free Stock Analysis Report
FIRST N-100 EQW (QQEW): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
TESLA MOTORS (TSLA): Free Stock Analysis Report
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report