Large cap stocks are generally preferred for asset allocation as they tend to be less volatile and give decent returns over the long term. Large cap stocks can be further classified as growth and value stocks. Growth stocks belong to exciting and fast-growing sectors like technology, financials etc. and tend to give superior returns as compared to value stocks. At the same time, growth stocks are much more volatile vis-à-vis value stocks.
The above facts make large cap growth ETFs an important part of any long term investment portfolio. This also includes retirement investment portfolios like 401K investments and IRA investments. Historically, large cap growth stocks/ETFs tend to outperform in low interest rate scenarios, like the current one.
This out-performance can be clearly seen when we compare U.S. large cap growth ETFs to other asset classes worldwide. In the last financial year, U.S. large cap growth ETFs have outperformed all asset classes, with the exception of gold and some treasuries. Please check the tables below for more information.
Major Asset Classes Trend
11/15/2011
Description | Symbol | 1 Week | 4 Weeks | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
Gold | -0.1% | 7.12% | -0.32% | 19.77% | 32.37% | 11.77% | |
US Stocks | -1.42% | 3.24% | 5.83% | -5.14% | 9.84% | 2.47% | |
US Credit Bonds | -0.79% | 0.85% | 1.19% | 3.69% | 7.14% | 2.41% | |
Total US Bonds | -0.12% | 0.85% | 0.73% | 4.12% | 6.06% | 2.33% | |
Commodities | -1.72% | 1.56% | -3.48% | -2.37% | 14.26% | 1.65% | |
International Treasury Bonds | -2.03% | -1.21% | -3.94% | 0.22% | 5.65% | -0.26% | |
Emerging Market Stks | -3.48% | 3.33% | -3.71% | -13.25% | -6.58% | -4.74% | |
International Developed Stks | -3.63% | -1.76% | -4.88% | -14.67% | -6.84% | -6.36% |
US Equity Style Trend
11/15/2011
Description | Symbol | 1 Week | 4 Weeks | 13 Weeks | 26 Weeks | 52 Weeks | Trend Score |
Russell Largecap Growth | -1.06% | 2.79% | 6.19% | -2.59% | 11.07% | 3.28% | |
Russell Smallcap Growth | -1.59% | 5.4% | 6.56% | -8.06% | 10.01% | 2.46% | |
Russell Largecap Index | -1.33% | 3.09% | 5.7% | -4.97% | 8.61% | 2.22% | |
Russell Midcap Growth | -1.38% | 3.81% | 5.42% | -7.56% | 9.94% | 2.05% | |
Russell Midcap Indedx | -1.67% | 3.98% | 5.08% | -8.13% | 8.04% | 1.46% | |
Russell Smallcap Index | -1.72% | 4.84% | 5.8% | -8.88% | 6.52% | 1.31% | |
Russell Midcap Value | -1.94% | 4.28% | 4.86% | -8.8% | 7.3% | 1.14% | |
Russell Largecap Value | -1.75% | 3.09% | 5.08% | -7.47% | 6.08% | 1.01% | |
Russell Smallcap Value | -2.0% | 4.33% | 5.08% | -9.77% | 2.88% | 0.1% |
For more information on the performance of various asset classes, see here.
As we can see, U.S. equity ETFs have significantly outperformed most asset classes and within U.S. stocks, the large cap growth ETFs have shown clear outperformance. Let us now take a closer look at some U.S. large cap growth ETFs.
U.S. Large Cap Growth
11/11/2011
Description | Symbol | 1 Yr | 3 Yr | 5 Yr | Avg. Volume(K) | 1 Yr Sharpe |
PowerShares QQQ | 9.19% | 25.16% | 6.66% | 77,822 | 63.3% | |
iShares S&P 500 Growth Index | 8.32% | 16.94% | 2.09% | 878 | 54.23% | |
iShares Russell 1000 Growth Index | 7.53% | 18.86% | 3.04% | 3,795 | 45.62% | |
Vanguard Growth ETF | 7.37% | 17.89% | 2.65% | 541 | 43.53% |
For more on ETFs linked to different asset classes, see here.
From the data in the above table, QQQ has the highest average daily volume (77,822k), the best returns (9.19% - 1 Yr.) and the highest Sharpe ratio (63.3%). This makes QQQ the best U.S. large cap growth ETF from the list. QQQ is an ETF which tracks the Nasdaq-100 Index®. It has a current asset value of $21.25 billion.
The following tables help us take a closer look at QQQ’s core holdings and sector allocation.
Top 10 Holdings (59.88% of Total Assets) |
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Sector Weightings (%) |
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QQQ’s massive outperformance can be explained by the fact that 63% of its total assets are invested in large cap bellwether technology companies. Some examples include Apple (15.01%), Microsoft (8.86%), Oracle (6.18%) and Google (5.55%). This over-reliance on a single sector (technology – 63.39%) is a mixed blessing, which can lead to pronounced outperformance when the market is going up and significant underperformance during downtrends. It can also lead to major problems if the sector in question (technology) is re-rated negatively in the future. Consequently, investment in QQQ must be hedged by investing in value ETFs, or debt related ETFs like U.S. total bond ETFs etc.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
