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ETF News And Commentary

The U.S. economy is recovering with solid retail sales data, positive housing data, a consistent rise in the employment rate and increasing consumer confidence. As a result, the S&P 500 index has shown a huge rally to start 2013, and is very close to all-time highs (read: 3 Ways to Play the S&P 500 Rally with ETFs).

With the Euro zone crisis still remaining a major overhang on global economic growth, investors remain wary about their returns as the rally might stall anytime soon. The International Monetary Fund (IMF) also reduced its global economic growth projections by 0.1% to 3.5% for 2013.

In such a scenario, investors should focus on the large cap segment which tends to be less volatile while still offering price appreciation. Furthermore, by honing in on value stocks in this capitalization level, even more safety can be assured to investors.

These 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. This strategy can reduce overall volatility and could be the perfect choice for investors concerned about the market direction going forward.

A look at the top ranked ETFs in the space, with a lower level of risk, could be a good idea (see more ETFs in the Zacks ETF Center). One way to find a top ranked ETF in the large cap value space is by using the Zacks ETF Ranking system.

About the Zacks ETF Rank

A look at the top ranked large cap value ETFs can be done by using the Zacks ETF Rank. This technique provides a recommendation for the ETF in the context of our outlook of the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors as well.

The aim of our model is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other ETFs with a similar level of risk.

Using this strategy, we have found one ETF in the space that has a Zacks Rank # 1 (Strong Buy) with a ‘medium risk’ tolerance level. The details are highlighted below:

Vanguard S&P 500 Value ETF (VOOV)

Investors seeking exposure to the U.S. large cap value space may find VOOV an intriguing choice. The ETF has generated more than 32% returns since its inception in September 2010. It seeks to match the price and yield of the S&P 500 Value Index, before fees and expenses.  

With a total of 359 stocks in its basket, the product is widely spread across individual securities with just 26.3% of assets in the top 10 holdings. The top three firms – General Electric ((GE - Analyst Report)), Chevron ((CVX - Analyst Report)) and AT&T (T - Analyst Report) – comprise only about 10% of the combined share in the basket. 

From a sector perspective, financials have been the top priority of the fund representing 21% of the total assets, followed by energy and industrials with 16% and 13% share, respectively (read: Financial ETFs Set to Rally in Earnings Season).

The product so far has managed assets of over $77 million and has a lower portfolio turnover of 20.0%. The large cap value ETF tends to be less volatile than many other products in the space.

The fund trades in a small volume of roughly 7,000 shares per day, suggesting a potentially wide bid/ask spread product. However, the underlying liquidity of the securities involved ensures that this will not be much of a problem overall (read: Do You Need a High Momentum ETF?).

Not only has VOOV delivered impressive returns of about 18.0% last year, it has also shown a strong run-up in its prices this year, gaining nearly 6% so far. Further, the ETF yields a decent dividend of 2.03% annually. Such returns are much more than the total expense, making it a decent play on the space with a moderate level of risk for those seeking more large cap value ETF exposure at this time.

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