The Principal U.S. MegaCap ETF (
USMC Quick Quote USMC - Free Report) made its debut on 10/12/2017, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Large Cap Blend category of the market. What Are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by Principal Funds. USMC has been able to amass assets over $2.06 billion, making it one of the larger ETFs in the Style Box - Large Cap Blend. This particular fund 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.
Cost & Other Expenses
Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.
Annual operating expenses for USMC are 0.12%, which makes it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 1.49%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
USMC's heaviest allocation is in the Information Technology sector, which is about 30.10% of the portfolio. Its Healthcare and Telecom round out the top three.
When you look at individual holdings, Apple Inc Common Stock Usd.00001 (
AAPL Quick Quote AAPL - Free Report) accounts for about 5.87% of the fund's total assets, followed by Berkshire Hathaway Inc Cl B Common Stock Usd.0033 ( BRK.B Quick Quote BRK.B - Free Report) and Pfizer Inc Common Stock Usd.05 ( PFE Quick Quote PFE - Free Report) .
USMC's top 10 holdings account for about 32.76% of its total assets under management.
Performance and Risk
Year-to-date, the Principal U.S. MegaCap ETF return is roughly 17.44% so far, and is up about 25.90% over the last 12 months (as of 10/08/2021). USMC has traded between $31.45 and $42.12 in this past 52-week period.
The ETF has a beta of 0.90 and standard deviation of 21.54% for the trailing three-year period. With about 48 holdings, it has more concentrated exposure than peers.
Principal U.S. MegaCap ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core S&P 500 ETF (
IVV Quick Quote IVV - Free Report) tracks S&P 500 Index and the SPDR S&P 500 ETF ( SPY Quick Quote SPY - Free Report) tracks S&P 500 Index. IShares Core S&P 500 ETF has $293.16 billion in assets, SPDR S&P 500 ETF has $391.66 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Blend.
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.