Published November 13, 2012
With fears of a fiscal cliff running high and the chances of a Thanksgiving rally diminishing by the day, investors looking to stay involved in stocks might want to seek comfort in the largest of the large caps. Or mega caps, as stocks with market values of over $100 billion are so often called.
Indeed, mega caps have already been endorsed as an ideal with which to find shelter from the brewing fiscal cliff storm. The theory being that higher beta mid and small cap issues could languish as investor seek more conservative destinations.
There is an interesting scenario pertaining to the largest stocks. While many, if not all are household names such as Apple (AAPL), Exxon Mobil (XOM) and General Electric (GE), not all of the ETFs that focus on these types of stocks are as widely known as their underlying components.
Popular holdings may not make for a popular ETF, but these unheralded mega-cap plays might be worthy of consideration in turbulent market environments.
PowerShares Active Mega Cap Fund (PMA) The PowerShares Active Mega Cap Fund is not only anonymous among mega-cap funds, it is also overlooked among actively manged ETFs. Still, the concept here is unique. PMA's constituents are selected based on earnings momentum, price trend, management action and relative value. Each stock is evaluated for risk using at least 17 variables, according to PowerShares.
PMA is split almost evenly between large-cap growth and large-cap value names with technology and financial services names combining for over 51 percent of the fund's weight. Top holdings include Exxon Mobil, Cisco (CSCO), Amgen (AMGN) and Apple.
PMA is somewhat pricey with an annual expense ratio of 0.75 percent, but in its favor, the fund has gained 7.63 percent year-to-date.
SPDR Global Dow ETF (DGT) Home to nearly 170 stocks, DGT lives up to its name and takes a more global approach to its lineup. Of the ETF's top-10 holdings, just one, Amgen, is a U.S.-based company. Overall, the U.S. accounts for 42.2 of DGT's country weight. Including the U.S., DGT offers exposure to 23 countries, including developed and emerging markets.
DGT has gained just over five percent this year, but valuation aficionados will like this ETF. With a price-to-earnings ratio of 11.53, DGT is slightly cheaper on that basis than the SPDR S&P 500 (SPY). The two funds have identical price-to-book ratios of two.
Vanguard Mega Cap Value 300 ETF (MGV) Rare is the low-cost broad market Vanguard ETF that flies under the radar, but that is what the Vanguard Mega Cap Value 300 ETF does. That is not criticism. Of the ETFs highlighted here, MGV is by far the best performer this year with a gain of almost 9.3 percent. It is also by far the cheapest with fees of just 0.12 percent per year. In fact, that makes MGV cheaper than 90 percent of comparable ETFs, according to Vanguard.
Nine of MGV's top-10 holdings are Dow components with Wells-Fargo (WFC) being the exception. The ETF is also fairly diverse with its holdings as the top 10 represent just 37.2 percent of the fund's overall weight.
A potential knock on MGV is that may not as conservative as investors expect. Combined, financials and energy stocks represent 41 percent of the fund's weight and those sectors should be avoided under a fiscal cliff scenario.
For more on mega cap ETFs, click here.
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