S&P Rates Mega-Cap ETF Overweight


In a year in which Apple (NASDAQ:AAPL) has soared to astronomical heights and U.S. large-caps have proven to be safer bets than foreign equivalents, it is not surprising that some investors are showing a preference for mega-cap stocks.

Investors looking to access the largest of the U.S. large-caps have choices when it comes to ETFs, but S&P Capital IQ prefers one fund: The iShares S&P 100 Index Fund (NYSE:OEF). With an expense ratio of 0.2 percent and almost $4.9 billion in assets under management, OEF tracks the S&P 100 Index.

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"S&P Capital IQ Equity Strategy Group favors relatively high exposure to the Consumer Staples, Energy and Information Technology sectors. As of June 2012, OEF had 50% of its assets in these sectors, compared to 42% for IVV. In contrast, OEF had less exposure to the Materials and Utilities sectors (3% vs. 7%), two sectors that S&P Capital IQ views less favorably from a top-down perspective," the research firm said in a note.

OEF's top-10 holdings account for 32.3 percent of the fund's weight. Apple receives the largest allocation at almost 7.3 percent. Other top-10 holdings include Exxon Mobil (NYSE:XOM), International Business Machines (NYSE:IBM) and Wells Fargo (NYSE:WFC). Eight of OEF's top-10 holdings are members of the Dow Jones Industrial Average.

"Taking a bottom-up look at OEF's holdings, across various sectors, we see many stocks that S&P Capital IQ finds favorable from a valuation and risk perspective. Indeed, eight of the 10 largest holdings that collectively comprise 32% of the portfolio are ranked as Strong Buy or Buy by the S&P Capital IQ equity analytical team," S&P said in the note. Meanwhile, eight of the top-10 holdings earn an above-average S&P Quality Ranking of A- or higher due to their consistently strong earnings and dividend track record."

Helped Apple's ascent, OEF has outperformed the iShares S&P 500 Index Fund (NYSE:IVV) over the past month, the pat three months and year-to-date. With its recent surge, Apple now has a market cap of almost $624 billion, the highest of all-time. In addition to Apple and IBM, OEF's other tech holdings include Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC) and Oracle (NASDAQ:ORCL).

"Overall, OEF receives an Overweight ranking from S&P Capital IQ. We think this diversified offering provides investors exposure to a number of stocks that are viewed favorably from a valuation and risk perspective at a low cost," S&P said.

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