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Is Principal U.S. MegaCap ETF (USMC) a Strong ETF Right Now?
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The Principal U.S. MegaCap ETF (USMC - Free Report) was launched on 10/12/2017, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Blend category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
The fund is managed by Principal Funds. USMC has been able to amass assets over $1.61 billion, making it one of the larger ETFs in the Style Box - Large Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the Nasdaq US Mega Cap Select Leaders Index.
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
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for USMC are 0.12%, which makes it one of the least expensive products in the space.
It's 12-month trailing dividend yield comes in at 1.61%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 31.40% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Healthcare and Telecom round out the top three.
When you look at individual holdings, Apple Inc Common Stock Usd.00001 (AAPL - Free Report) accounts for about 5.91% of the fund's total assets, followed by Pfizer Inc Common Stock Usd.05 (PFE - Free Report) and Pepsico Inc Common Stock Usd.017 (PEP - Free Report) .
USMC's top 10 holdings account for about 32.82% of its total assets under management.
Performance and Risk
Year-to-date, the Principal U.S. MegaCap ETF has lost about -5.61% so far, and is up about 17.11% over the last 12 months (as of 02/08/2022). USMC has traded between $34.92 and $44.69 in this past 52-week period.
The ETF has a beta of 0.90 and standard deviation of 20.88% for the trailing three-year period. With about 47 holdings, it has more concentrated exposure than peers.
Alternatives
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 - Free Report) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY - Free Report) tracks S&P 500 Index. IShares Core S&P 500 ETF has $320.61 billion in assets, SPDR S&P 500 ETF has $405.88 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.
Bottom Line
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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Is Principal U.S. MegaCap ETF (USMC) a Strong ETF Right Now?
The Principal U.S. MegaCap ETF (USMC - Free Report) was launched on 10/12/2017, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Blend category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
The fund is managed by Principal Funds. USMC has been able to amass assets over $1.61 billion, making it one of the larger ETFs in the Style Box - Large Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the Nasdaq US Mega Cap Select Leaders Index.
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
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for USMC are 0.12%, which makes it one of the least expensive products in the space.
It's 12-month trailing dividend yield comes in at 1.61%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 31.40% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Healthcare and Telecom round out the top three.
When you look at individual holdings, Apple Inc Common Stock Usd.00001 (AAPL - Free Report) accounts for about 5.91% of the fund's total assets, followed by Pfizer Inc Common Stock Usd.05 (PFE - Free Report) and Pepsico Inc Common Stock Usd.017 (PEP - Free Report) .
USMC's top 10 holdings account for about 32.82% of its total assets under management.
Performance and Risk
Year-to-date, the Principal U.S. MegaCap ETF has lost about -5.61% so far, and is up about 17.11% over the last 12 months (as of 02/08/2022). USMC has traded between $34.92 and $44.69 in this past 52-week period.
The ETF has a beta of 0.90 and standard deviation of 20.88% for the trailing three-year period. With about 47 holdings, it has more concentrated exposure than peers.
Alternatives
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 - Free Report) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY - Free Report) tracks S&P 500 Index. IShares Core S&P 500 ETF has $320.61 billion in assets, SPDR S&P 500 ETF has $405.88 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.
Bottom Line
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.