Designed to provide broad exposure to the Style Box - Large Cap Blend category of the market, the Principal U.S. MegaCap ETF (
USMC Quick Quote USMC - Free Report) is a smart beta exchange traded fund launched on 10/12/2017. What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
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
USMC is managed by Principal Funds, and this fund has amassed over $1.39 billion, which makes it one of the larger ETFs in the Style Box - Large Cap Blend. Before fees and expenses, USMC 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
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.
Operating expenses on an annual basis are 0.12% for USMC, making it one of the least expensive products in the space.
It's 12-month trailing dividend yield comes in at 1.87%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
USMC's heaviest allocation is in the Information Technology sector, which is about 29.30% of the portfolio. Its Healthcare and Consumer Staples 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 6.75% 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 Coca Cola Co/the Common Stock Usd.25 ( KO Quick Quote KO - Free Report) .
USMC's top 10 holdings account for about 37.05% of its total assets under management.
Performance and Risk
The ETF has lost about -15.79% so far this year and is down about -2.38% in the last one year (as of 06/13/2022). In the past 52-week period, it has traded between $37.39 and $44.69.
USMC has a beta of 0.90 and standard deviation of 21.81% for the trailing three-year period. With about 46 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 $290.45 billion in assets, SPDR S&P 500 ETF has $354.62 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.