Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Mega-Cap Stocks ETF's For the Bluest of Blue Chip Investing 2010

Companies / Investing 2010 Dec 17, 2009 - 08:20 AM GMT

By: Ron_Rowland

Companies

Best Financial Markets Analysis ArticlePeople often associate “big” with “safe.” They think big ships are safer than small boats. Big banks are safer than small banks. Big stocks are safer than small stocks.

Of course, it doesn’t always work out that way … the gigantic Titanic turned out to be quite a bit more dangerous than the Skipper’s S.S. Minnow. And on average, you are much safer aboard a small plane than you are in your supersize SUV.


Nonetheless, stock investors who want to apply the “Big = Safe” principle often lean toward “mega-cap” stocks. These are the largest of the large — big companies that are often household names because they’re everywhere. Think of stocks such as …

Coca-Cola is one of the most widely recognized brands in the world.
Coca-Cola is one of the most widely recognized brands in the world.
  • ExxonMobil (XOM)
  • Coca-Cola (KO)
  • AT&T (T)
  • Microsoft (MSFT)
  • Procter & Gamble (PG)

You’ve probably spent money with all these companies — one way or the other. And most people find it hard to remember a time when they didn’t exist!

Many of the largest foreign companies are also familiar names. In fact, many have a significant, or even a dominant, market share with U.S. consumers. Examples include …

  • Nestle
  • Bayer
  • BP
  • Toyota
  • Canon

Like mountains and valleys, mega-cap stocks are simply part of the landscape. They’re the bedrock — the foundation on which smaller things are built.

Bayer dominates the U.S. market.
Bayer dominates the U.S. market.

This quality gives mega-cap stocks an extra value. For instance, ExxonMobil isn’t worth as much as it is just because it represents oil in the ground … its shares fetch a premium price for no reason other than being ExxonMobil.

Is this fair to smaller companies? No, it’s not. But I could argue that mega-caps have a handicap, too. After all, they cannot grow as fast as small-cap stocks because they are simply too big.

The point is that mega-caps are a category of their own.

ETFs Cover the Mega-Caps …

Exchange traded fund (ETF) sponsors want to cover every possible investment niche, so they’ve created a number of mega-cap funds. Here’s an overview for you.

To start off with, I think investors should always take a global approach to their investing. But if you’ve been reluctant to invest internationally, these first two ETFs might help you take a step in that direction since most of the foreign holdings will be names you are already familiar with:

  • SPDR DJ Global Titans (DGT) typically holds the 50 largest stocks from around the world. The “smallest” holding is Nokia, the cell phone giant located in Finland. Stocks from the U.S. comprise about 60 percent of these global titans, while the U.K., Switzerland, and France are the next largest of the 12 countries represented.
  • iShares S&P Global 100 Index Fund (IOO) is similar to DGT in that it takes a global approach to mega-cap stocks. The major difference is that it holds twice as many stocks. This approach brings the U.S. weighting down to about 43 percent of the fund. The “smallest” stock in IOO is Philips Electronics of the Netherlands.

However, if you prefer to focus just on the U.S., there are numerous mega-cap ETFs to choose from:

  • Rydex Russell Top 50 ETF (XLG) holds the largest U.S. listed stocks. And even though it consists of only 50 stocks, it represents nearly 40 percent of the total market cap of the U.S. stock market.
  • DIAMONDS Trust (DIA) consists of 30 blue-chip stocks in one ETF, but they are not just any 30 stocks. They are the same ones that make up the Dow Jones Industrial Average, the most well-known stock market index in the world.
  • iShares S&P 100 Index Fund (OEF) is another way to capture many of the largest U.S. listed companies with an ETF. As its name suggests, OEF consists of the 100 largest stocks that make up the famous S&P 500 index.

There are also two “families” of mega-cap ETFs …

You may be familiar with the nine-square style box from Morningstar that divides the market into three capitalization segments (large, mid, and small) and three valuation segments (value, blend, and growth). Well, think of these mega-cap families as adding another row across the top of that matrix:

  • Vanguard Mega Cap 300 Index ETF (MGC) is based on the largest 300 U.S. listed stocks. This group is then further divided into ETFs representing value (MGV) and growth (MGK).
  • iShares Russell Top 200 Index Fund (IWL) is a relatively new offering focused on the largest 200 U.S. listed stocks. This group is then further divided into ETFs representing value (IWX) and growth (IWY).

In the interest of completeness, I’m going to tell you about a few other mega-cap ETFs:

  • iShares NYSE 100 Index (NY) simply consists of the largest 100 stocks listed on the New York Stock Exchange.
  • SPDR DJ STOXX 50 ETF (FEU) holds the 50 largest stocks in the pan-European Dow Jones STOXX Total Market Index.
  • PowerShares Active MegaCap (PMA) takes an “active” approach to mega-cap investing while all the others listed above are index-based ETFs. The managers of PMA attempt to pick the 40 or so stocks they think will do best from the Russell Top 200 Index.

One of the characteristics of my favorite ETFs is their ability to provide access to various segments of the market. So when you want a stake in the largest stocks in the world — the mega-cap stocks — consider the ETFs outlined above.

Best wishes,

Ron

P.S. I’m now on Twitter. You can follow me at http://www.twitter.com/ron_rowland for frequent updates, personal insights and observations about the world of ETFs.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules