Exchange Traded Funds (ETFs)

Invest in the Best with This Mega-Cap ETF

Even a cursory look at stock market history can tell anyone that buying the largest U.S. companies by market capitalization have been a strong investing strategy over the years.

After all, growing into one of the largest companies on the U.S. stock exchanges requires an organization to be well managed and experience a long trend of success. There are many ways to invest in these companies, and one such example is to purchase shares of Principal U.S. Mega-Cap ETF (USMC).

This exchange-traded fund (ETF) invests in some of the biggest companies on the market, but its strategy is a little more nuanced than just betting on the field of large-cap stocks. USMC also weights less volatile companies more strongly within the universe of those from which to select its holdings.

Market cap, calculated by multiplying the total number of shares by the present share price, is also a factor for investors to consider. But weighting companies that have less volatility more strongly than others in a purely cap-weighted fund puts Apple Inc. (NASDAQ: AAPL) near the top of the list of USMC’s largest holdings. It is followed by more value-oriented mega-caps such as Walmart (NYSE: WMT) and Johnson & Johnson (NYSE: JNJ). For reference, tech stalwarts Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN) are the 18th, 23rd and 25th largest holdings, respectively.

In the last year, this fund has outperformed the S&P 500 with a gain of 9.5% compared to the index’s 4.9%. Part of the fund’s goal is to perform better during market downturns than a pure mega-cap strategy, and it looks to have accomplished this objective. The fund significantly outperformed the S&P in the month of April. USMC manages a total of $1.63 billion and its 0.12% expense ratio is fairly cheap, especially for a fund with a nuanced strategy. Income investors will be pleased to know USMC offers a dividend yield of 1.44%.

Chart courtesy of www.stockcharts.com

Top holdings for USMC not only include Apple Inc., 6.59%, but Berkshire Hathaway Inc. (NYSE: BRK.B), 3.99%; Coca-Cola Co. (NYSE: KO), 3.86%; PepsiCo Inc. (NASDAQ: PEP), 3.56%; and Procter & Gamble Co. (NYSE: PG), 3.53%. Further, 37.81% of the fund’s assets are invested in its top 10 holdings.

For investors interested in gaining exposure to a less volatile basket of proven winners, Principal U.S. Mega-Cap ETF (USMC) could be an ETF worth holding.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.