XLG: Why 50 Stocks Is Too Few

Summary

• XLG is a simplified version of an S&P 500 ETF, selecting only the top 50 companies and reconstituting each June. XLG's fees are 0.20%, with $1.81 billion in assets under management.
• XLG has historically underperformed SPY and other mega-cap ETFs like OEF and MGC. The strategy hasn't worked, and one key reason is because 50 stocks is too few.
• Besides, OEF and MGC are two other mega-cap ETFs with better fundamentals and earnings momentum. This article compares volatility, valuation, growth, and profitability for all three.
• Focused ETFs solve the problem of over-diversification, but XLG goes too far. I don't recommend investors take a position.

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Investment Thesis

The Invesco S&P 500 Top 50 ETF (NYSEARCA:XLG) provides focused exposure to the largest 50 S&P 500 companies for a 0.20% expense ratio. Essentially, it's a mega-cap ETF similar to the iShares S&P 100

Analyst’s Disclosure:I/we have a beneficial long position in the shares of SPY, MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.