A significant cross section of the investment community has been conditioned to benchmark their large-cap ETF exposure against the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). After all, this market bellwether is the largest ETF in the world, and tracks the most commonly referenced yardstick of equity returns.
However, while investing in SPY makes sense if you are looking to track the market-cap-weighted S&P 500, there is an extensive universe of unique large-cap funds that deserve your attention as well.
Many of these innovative ETFs offer a strong case for targeting a niche style or index methodology that may enhance your returns over the long run. And often, pairing multiple funds is an attractive technique because it can diversify your risk or allow you to hone in on a specific theme outside of a traditional benchmark.
Let’s look at a few large-cap ETFs that don’t have the same name cache as the SPY, but could offer you more over the long run.
Best ETFs for Large Caps: Vanguard Growth ETF (VUG)
Growth stocks have significantly outperformed value names over the last 5 years, which is why the Vanguard Growth ETF (NYSEARCA:VUG) is one of the top performing large-cap ETFs in its class. This fund has $17.5 billion in total assets tracking 371 companies across a variety of sectors.
According to fund company data, VUG has gained 17.3% in average annualized return over the last half-decade (through the end of February), while SPY has notched a 16.01% profit.
Because of its growth demographic, VUG has 44% of its portfolio exposure dedicated to technology and consumer services companies. Apple Inc. (NASDAQ:AAPL) and Walt Disney Co (NYSE:DIS) are examples of these sectors represented in VUG’s top 10 holdings. Conversely, this ETF has very limited exposure to utility, telecommunication and basic material stocks.
I currently own this ETF for clients of my Opportunistic Growth portfolio and consider it to be a core large-cap position. With a 0.09% expense ratio and diversified basket of holdings, VUG should be considered as a strong SPY alternative for your portfolio.
Best ETFs for Large Caps: First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
According to ETF.com, the PowerShares QQQ Trust (NASDAQ:QQQ) has been the strongest large-cap equity ETF over the past five years. However, one drawback to investing in the most well-known ETF tracking the Nasdaq-100 Index is the market-cap weighted structure. This index construction methodology allows for a very top-heavy asset allocation directed toward AAPL and Microsoft Corporation (NASDAQ:MSFT) as the two largest companies.
For more consistent overall diversification, I recommend investing in the large-cap technology growth theme through the First Trust NASDAQ-100 Equal Weighted Index Fund (NASDAQ:QQEW). This fund reconstitutes the Nasdaq-100 Index into an equal weighted structure that allows for a level distribution of assets across all 100 stocks.
The unique organization in QQEW generated annualized market price returns of 18.65% over the last five years, which again beat the performance of SPY. This ETF has a higher expense ratio of 0.6%, yet still offers a compelling basket of high-growth stocks to own in a bull market.
Best ETFs for Large Caps: PowerShares S&P 500 High Quality Portfolio (SPHQ)
Looking for a way to cherry pick top quality stocks from the S&P 500 Index? PowerShares S&P 500 High Quality Portfolio (NYSEARCA:SPHQ) has done just that by identifying companies with the potential for long-term growth through stability of earnings and dividends. The end result is a diversified portfolio of 130 stalwart stocks identified by Standard & Poor’s that are rebalanced and evaluated quarterly.
The majority of the portfolio exposure in SPHQ is in the industrial and consumer sectors, which makes this fund unique from many of the technology-heavy offerings that dominate this category.
SPHQ has a net expense ratio of 0.29% and over $550 million in total assets. This ETF has gained 18.67% in annualized total return over the last five years as well.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. As of this writing, he was long VUG in client accounts. Learn More: Why I Love ETFs, And You Should Too.
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