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David England: Large-Caps — Is bigger better?
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Column | Eye on the Market

David England: Large-Caps — Is bigger better?

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Recently, I began my series to identify market cap indexes ETFs, high-performance funds with low expense ratios. I started with the most overlooked group, small caps., then moved to the mid-caps and showed how both groups grossly outperformed the general market ($SPX) in the last year.

What is next? Today, I wrap up with my large-cap index ETFs and show their performance and expense ratios to compare with your holdings.

Here are some of my favorite large-cap ETFs by the size of assets. 

SPY-SPDR S&P 500 ETF Trust tracks the investment results of the S&P 500 Index, which measures the performance of the large-capitalization sector of the U.S. equity market. SPY has AUM-Assets under management of 348 billion and an expense ratio of .09%.

IVV-iShares Core S&P 500 ETF alsotracks the investment results of the S&P 500 Index, which measures the performance of the large-capitalization sector of the U.S. equity market. IVV has assets of 261 billion and an expense ratio of only .03%, the lowest expense ratios in the group.

VTI-Vanguard Total Stock Market Index Fund ETF sharestrack the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market, focusing mainly on large-cap but can include mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq. VTI has assets of 224 billion and an expense ratio of .03%, the lowest expense ratios in the group.

VUG-Vanguard Growth Index Fund ETF tracksthe CRSP US Large-Cap Growth Index, predominantly made up of growth stocks of large U.S. companies. VUG has assets of 144 billion and an expense ratio of .04%. 

IWF-iShares Russell 1000 Growth ETF tracks the Russell 1000 Growth Index, which measures the performance of mainly large-cap growth sectors of the U.S. equity market.  IWF is the smallest fund in this group, with assets of 61 billion and an expense ratio of .19%, the highest expense ratio in this group.

I charted the performance of each fund from the recent market bottom, March 2020, running to real-time. The results and returns by rank are as follows: VUG-Vanguard Growth Index Fund ETF (blue line) up 96.27%, IWF-iShares Russell 1000 Growth ETF (red line), up 93.40%, VTI-Vanguard Total Stock Market Index Fund ETF (green line) up 93.34%, IVV-iShares Core S&P 500 ETF (purple line), up 85.79%. The laggard in the group, SPY-SPDR S&P 500 ETF Trust (brown line), is up 85.25%, and the market, $SPX (black line), is only up 82.30%. 

Here are the action points:

  • Bigger is not always better. The largest funds did not consistently outperform the smaller funds. 
  • These results represent a specific period. Different dates will result in different outcomes. 
  • Past performance does not dictate future returns.
  • All these major large-cap ETFs outperformed the returns of the S&P 500 symbol $SPX.
  • The leader of this group, VUG, outperformed $SPX by 13.97%.
  • The laggard of this group, SPY, outperformed $SPX by 2.95%.

Next, let’s take the top two ETFs from the small and mid-cap groups and compare them with these top large-cap ETFs. To review the previous small and mid-cap columns, go to thesouthern.com and search for my columns. 

I charted the performance of each fund from the recent market bottom, March 2020, running to real-time. The results and returns by rank are as follows: SCHA-Schwab US Small-Cap ETF (blue line) up 129.96%, IWM-iShares Russell 2000 Growth ETF (red line), up 126.50%, IJH-iShares Core Mid-Cap ETF (green line) up 121.75%, MDY-Vanguard Growth ETF (purple line), up 96.16%. The laggards in the group, VUG- Vanguard Growth Index Fund ETF (orange line), up 93.33%, and finally, SPY-SPDR S&P 500 ETF Trust (brown line) is up 85.25%, and the market, $SPX (black line), is only up 82.29%. 

Here are the action points:

  • Bigger is not always better. The small and mid-cap funds consistently outperformed the large-cap funds. 
  • These results represent a specific period. Different dates will result in different outcomes. 
  • Past performance does not dictate future returns.
  • All these major market cap ETFs outperformed the returns of the S&P 500 symbol $SPX.
  • Small and mid-cap funds should not be overlooked.
  • Notice how the fund's performance took off after October 2020-see red oval. 

Do you know the expense ratios for your funds? If not, why? Many are shocked when they discover their financial planner has them in market-cap funds with expense ratios north of .50% or higher. If this is the case, make sure the funds outperform the lower expense ratio funds by at least that amount. 

Finally, if you own market cap mutual funds, research the name of the index your market cap funds track. If they track the indexes named in this column and have four, five, or six times the fees and expense ratio's ask why? 

I have seen many high commission mutual funds that fall into the higher multiple expense ratio camp and, other than a unique fund name, perform a lot less than these funds with exceptionally low expenses. 

Even with a time frame of one year, you can see how low expense ratios make a difference in performance. Over 10, 20, or 30 years, it can make a huge difference. 

Take the time to learn which brokerages work to lower fees and provide low-expense funds plus no or low-cost client services for the new normal. 

Plan your work, work your plan, and share your harvest!   

David O. England is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to thetraderseye@gmail.com.

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