Best ETFs For Large-Cap Value  

by Lawrence Meyers | November 6, 2014 10:45 am

It can be a challenge to find the best exchange-traded funds (ETF) for a long-term, diversified portfolio. There are over a thousand ETFs out there. Some appear to be carbon copies, while others carry expense ratios that are unreasonably high.

Nevertheless, the very best ETFs deserve a place in your portfolio. You need broad exposure in order to mitigate risk and to make sure you have at least a piece of that overlooked value stock that becomes a ten-bagger.

This week, as I continue my series, I’m surveying the best ETFs for large-cap value stocks. You can make a lot of money in growth stocks, but value stocks are the realm of the multi-bagger — stocks that ultimately return many multiples of your initial purchase price.

According to ETFdb.com,[2] there are 59 large-cap value ETFs, with expense ratios ranging from just .07% to 1%. They are definitely not created equal. Their year-to-date (YTD) returns range from -3.2% to 13.6% as of Nov. 3.

Best ETFs: Columbia Select Large Cap Value ETF

For aggressive investors, I suggest the Columbia Select Large Cap Value ETF (GVT[3]). This ETF is up 12.84% so far this year.  I consider it aggressive because it isn’t as diversified as I want most ETFs to be, with only 38 holdings.

The expense ratio is a bit high at 0.79%, but that’s not outrageous for a category that averages 0.44%.  It isn’t terribly liquid, though, so buy in small chunks.

Of the 38 stocks it holds, the top ten make up 36% of total assets.

This “best ETF” apparently thinks the following stocks are very much in the value category, given their status as the top five holdings: Anadarko Petroleum (APC[4]), Citigroup (C[5]), Verizon (VZ[6]), Wells Fargo (WFC[7]), and Applied Materials (AMAT[8]).

Best ETFs: Schwab U.S. Large Cap Value ETF

For the more conservative investor, I suggest the Schwab U.S. Large Cap Value ETF (SCHV[9]).  One of the largest ETFs in the category, it also carries the lowest expense ratio at .07%.  This “best ETF” is up 8.48% YTD.

It is much more broadly diversified than Columbia’s, with 352 holdings. The top ten only account for 26.6% of the total asset base.

Its sector diversity is appealing. It has 19% of assets invested in financials, 13% in tech, 12% in consumer defensive, 12% in healthcare, 11% in energy and 9% in industrials. The rest is divided between consumer cyclical, utilities (a healthy 5% dose), real estate, communications, and basic materials.

Here we find the kind of famous names you’d expect:  ExxonMobil (XOM[10]), Microsoft (MSFT[11]), Johnson & Johnson (JNJ[12]), General Electric (GE[13]) and Wells Fargo.

It’s a low-turnover fund — just 10% of stocks turned over in the past year.  Its average price-to-earnings ration is 16.54, not that far removed from the S&P 500. But it enjoys a beta of 0.93 compared to the index, meaning it will be slightly less volatile.

Best ETFs: Guggenheim S&P 500 Pure Value ETF

The best ETF for all-around large-cap value holdings is the companion to the best ETF choice for growth holdings, the Guggenheim S&P 500 Pure Value ETF (RPV[14]).

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Just like its growth counterpart, I like the 117 stocks it holds, which is plenty of diversification. Plus, the top ten holdings only account for 19% of the assets.

It’s up 10.04% YTD, so it fits right in between the other two “best ETFs” in performance this year.

The sector breakdown is 25% financials, 14% energy, 9% health care, 8% consumer cyclical, 7% tech, 6% industrial, and 6% consumer defensive and a smattering of other sectors. It has a reasonable expense ratio of .35%.

I particularly like that it is truly seeking out value holdings as opposed to going with big names to make people feel comfortable.  Its selections include Alcoa (AA[16]), WellPoint (WLP[17]), Archer-Daniels Midland (ADM[18]) and Xerox (XRX[19]).

Lawrence Meyers does not own any securities mentioned.

Source URL: https://investorplace.com/2014/11/best-etf-large-cap-value/

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