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Should Principal U.S. MegaCap ETF (USMC) Be on Your Investing Radar?

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Launched on 10/12/2017, the Principal U.S. MegaCap ETF (USMC - Free Report) is a passively managed exchange traded fund designed to provide a broad exposure to the Large Cap Blend segment of the US equity market.

The fund is sponsored by Principal Funds. It has amassed assets over $1.88 billion, making it one of the larger ETFs attempting to match the Large Cap Blend segment of the US equity market.

Why Large Cap Blend

Large cap companies usually have a market capitalization above $10 billion. Considered a more stable option, large cap companies boast more predictable cash flows and are less volatile than their mid and small cap counterparts.

Typically holding a combination of both growth and value stocks, blend ETFs also demonstrate qualities seen in value and growth investments.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.12%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.44%.

Sector Exposure and Top Holdings

ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Information Technology sector--about 26.50% of the portfolio. Healthcare and Telecom round out the top three.

Looking at individual holdings, Apple Inc Common Stock Usd.00001 (AAPL - Free Report) accounts for about 6.04% of total assets, followed by Berkshire Hathaway Inc Cl B Common Stock Usd.0033 (BRK.B - Free Report) and Jpmorgan Chase + Co Common Stock Usd1.0 (JPM - Free Report) .

The top 10 holdings account for about 36.39% of total assets under management.

Performance and Risk

USMC seeks to match the performance of the Nasdaq US Mega Cap Select Leaders Index before fees and expenses. The Nasdaq U.S. Mega Cap Select Leaders Index uses a quantitative model designed to identify equity securities of companies with the largest market capitalizations in the Nasdaq US 500 Large Cap Index, with higher weights given to securities that are less volatile.

The ETF return is roughly 9.24% so far this year and is up about 32.09% in the last one year (as of 05/21/2021). In the past 52-week period, it has traded between $29.22 and $39.04.

The ETF has a beta of 0.90 and standard deviation of 21.48% for the trailing three-year period. With about 41 holdings, it has more concentrated exposure than peers.

Alternatives

Principal U.S. MegaCap ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, USMC is a good option for those seeking exposure to the Style Box - Large Cap Blend area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Core S&P 500 ETF (IVV - Free Report) and the SPDR S&P 500 ETF (SPY - Free Report) track a similar index. While iShares Core S&P 500 ETF has $277.04 billion in assets, SPDR S&P 500 ETF has $357.39 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.

Bottom-Line

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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