The global stock market has been choppy since the start of 2015 as a mountain of woes and increased volatility kept coming in the way of investments, but this was hardly the case for the U.S. market.
The U.S. economy appeared to be the lone star in the developed nations' pack armed with a healing job market, improving housing data and better consumer savings. After all, the U.S. is the only major developed nation receiving the upward revision in future growth estimates from the IMF and the World Bank.
Though key domestic bourses had a sluggish start to the year, the indices jumped off to enter March on dovish Fed comments that it is not in any hurry to hike rates due to a muted inflationary backdrop and a wave of rate cuts across key developed and developing nations.
Nasdaq closed above the 5,000 mark for the first time since March 2000, bolstered by the technology sector. The Dow and the S&P 500 also touched record highs as the U.S. economy is seen to be regaining its sheen.
The markets simply brushed aside the latest reports of a slowdown in manufacturing activity and consumer spending. The S&P 500 set record highs for the fifth time this year, while the Dow did it for the fourth time. This clearly corroborates the large cap boom in the U.S.
It appears that the confidence in the international economy is far from steady. The World Bank cut its forecast for 2015 global growth to 3% from 3.4% (made in June), and for 2016 to 3.3% from 3.5%. The IMF too expects growth of 3.5% this year versus the prior estimate of 3.8% (made in October). The growth forecast for next year has also been lowered to 3.7%, down 0.3 percentage points.
Plus, though the U.S. market is on positive trajectory, investors may see bouts of volatility in the months ahead as the Fed moves closer to normalization of monetary policy.
All these suggest that investors should cycle back to large value caps, which tend to be the most stable in an uncertain environment. Large cap value funds offer exposure to a wide variety of stocks with value characteristics, such as low P/B, low P/S and low P/E ratios, which reduce company specific risks.
If this was not enough, global policy easing has sharpened investors' drive for higher income. Thus, large cap value ETFs with a tilt toward high dividend payout should be the best bet at the current level.
Below, we have highlighted three large cap ETFs for those investors seeking both stability and higher income. These funds are all top-rated and have the potential to move higher in the coming months.
Vanguard Dividend Appreciation ETF (NYSEARCA:VIG)
This is the largest and most popular ETF in the dividend space with AUM of $21.3 billion and average daily volume of about 1 million shares. The fund provides exposure to high quality stocks that have a decade-long record of increasing dividends by tracking the Nasdaq US Dividend Achievers Select Index.
It holds 163 securities in the basket and its top 10 concentration risk is 35.5%. Wal-Mart (NYSE:WMT), PepsiCo (NYSE:PEP) and Johnson & Johnson (NYSE:JNJ) are the top three choices of the fund. Expense ratio came in at 0.10%. The fund was up about 14% in the last one month (as of March 3, 2015) and has a dividend yield of 1.90% (as of the same date). The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
Vanguard High Dividend Yield ETF (NYSEARCA:VYM)
This large cap centric fund provides exposure to high yielding U.S. dividend stocks by tracking the FTSE High Dividend Yield Index. The ETF is one of the largest and most popular choices in the dividend ETF space with AUM of over $11.2 billion and average daily volume of around 800,000 shares. Expense ratio came in at 10 bps.
Holding 393 securities, the product is concentrated on the top two firms - Apple (NASDAQ:AAPL) and Exxon Mobil (NYSE:XOM) - making up for more than a 4% share each, while other securities hold less than 3.6% of assets. In terms of sector, the fund is widely spread out with technology, consumer goods, financials, industrials, healthcare and oil & gas taking double-digit exposure in the basket.
The ETF yields 2.72% (as of March 3, 2015) and has a Zacks ETF Rank #1 with a Medium risk outlook. VYM was up 17% in the last one year (as of the same date).
Vanguard S&P 500 Value ETF (NYSEARCA:VOOV)
This ETF looks to track the S&P 500 Value Index. The fund has been able to manage assets of $269 million, though it trades in a paltry volume of 15,000 shares a day on average. Expense ratio comes in at 0.15%.
With less than 365 stocks in its basket, the product is widely diversified across each component, as the top 10 holdings take just one-fourth share of the basket. The top three holdings include XOM, Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and General Electric (NYSE:GE).
From a sector look too, the fund is well spread out, including financials, energy, industrials and consumer staples. The fund has a dividend yield of 1.96% (as of March 3, 2015) and was up about 14.5% in the last one year. VOOV also has a Zacks ETF Rank #1 with a Medium risk outlook.